Asked by Angela Espinoza on May 14, 2024
Verified
Compton Company uses a predetermined overhead rate in applying overhead to production orders on a labour cost basis in Department A and on a machine hours basis in Department B. At the beginning of the most recently completed year, the company made the following estimates: Dept. A Dept. B Direct labour cost $56,000$33,000 Factory overhead $67,200$45,000 Direct labour hours 8,0009,000 Machine hours 4,00015,000\begin{array} { | l | l | l | } \hline & \text { Dept. A } & \text { Dept. B } \\\hline \text { Direct labour cost } & \$ 56,000 & \$ 33,000 \\\hline \text { Factory overhead } & \$ 67,200 & \$ 45,000 \\\hline \text { Direct labour hours } & 8,000 & 9,000 \\\hline \text { Machine hours } & 4,000 & 15,000 \\\hline\end{array} Direct labour cost Factory overhead Direct labour hours Machine hours Dept. A $56,000$67,2008,0004,000 Dept. B $33,000$45,0009,00015,000 What predetermined overhead rate would be used in Department A and Department B, respectively?
A) 83% and $3.
B) 120% and $3.
C) 81% and $3.
D) 83% and $5.
Predetermined Overhead Rate
An estimated charging rate used to apply manufacturing overhead costs to produced units, based on a selected activity base.
- Master and implement the concept of predetermined overhead rates in the estimation of applied manufacturing overhead.
Verified Answer
MM
Mohammed Muzaffar ShareefMay 18, 2024
Final Answer :
B
Explanation :
The predetermined overhead rate for Department A is calculated as the total factory overhead divided by the total direct labor cost: $67,200$56,000=1.2\frac{\$67,200}{\$56,000} = 1.2$56,000$67,200=1.2 or 120%. For Department B, it's the total factory overhead divided by the total machine hours: $45,00015,000 hours=$3\frac{\$45,000}{15,000 \text{ hours}} = \$315,000 hours$45,000=$3 per machine hour.
Learning Objectives
- Master and implement the concept of predetermined overhead rates in the estimation of applied manufacturing overhead.
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