Odonnel Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $36,000, variable manufacturing overhead of $2.80 per direct labor-hour, and 10,000 direct labor-hours.The predetermined overhead rate is closest to:

A) $2.80 per direct labor-hour
B) $6.40 per direct labor-hour
C) $3.60 per direct labor-hour
D) $9.20 per direct labor-hour

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Erika Gutierrez · Accepted Answer

Final Answer : B, Explanation :  The predetermined overhead rate is calculated by adding the total fixed manufacturing overhead cost to the total variable manufacturing overhead cost (which is the variable rate multiplied by the estimated total direct labor-hours), and then dividing by the estimated total direct labor-hours. Here, it's ($36,000 + ($2.80 * 10,000)) / 10,000 = ($36,000 + $28,000) / 10,000 = $64,000 / 10,000 = $6.40 per direct labor-hour.

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