Question

A company uses direct labor costs as it allocation base. Management estimates the company will incur $150,000 of direct labor cost during the year and total overhead costs of $200,000. What is their predetermined overhead rate? 1.33% 133% 50% 75%

Answer 1

Answer:

133.33%

Explanation:

The computation of the predetermined overhead rate is shown below:

Predetermined overhead rate = Total overhead cost ÷ direct labor cost

where,

Total overhead cost is $200,000

And, the direct labor cost is $150,000

Now placing these values to the above formula

So, the predetermined overhead rate is

= $200,000 ÷ $150,000

= 1.33%

We simply applied the above formula