Question

Activity Levels Used to Compute Overhead Rates Reggie Wilmore has just started a new business-building and installing custom garage organization systems. Reggie builds the cabinets and work benches in his workshop, then installs them in clients' garages. Reggie figures his overhead for the coming year will be $15,600. Since his business is labor intensive, he plans to use direct labor hours as his overhead driven. For the coming year, he expects to complete 140 jobs, averaging 35 direct labor hours each. However, he has the capacity to complete 175 jobs averaging 35 direct labor hours each
Required: 1. Compute the predetermined overhead rates using each of the measures in your answer to Requirement 1. Round your answers to the nearest cent. Predetermined Overhead Rate Expected actual activity Theoretical activity
2. Which one would you recommend that Reggie use?

Answer 1

Answer:

1. $3.18 and $2.55

2. expected annual activity

Explanation:

The computation of the predetermine overhead rate is shown below:

1. For Expected actual activity, it is

= (Overhead for the coming year) ÷ (completed jobs × direct labor hours)

= ($15,600) ÷ (140 jobs × 35 direct labor hours)

= $3.18

And, for  Theoretical activity, it is

= (Overhead for the coming year) ÷ (completed jobs × direct labor hours)

= ($15,600) ÷ (175 jobs × 35 direct labor hours)

= $2.55

2. Based on the predetermined overhead rate, the expected actual activity has highest predetermined overhead rate as compared to the theoretical activity

So the Reggie should use the same