Gerstein 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 $90,000, variable manufacturing overhead of $3.70 per direct labor-hour, and 50,000 direct labor-hours. The company recently completed Job M800 which required 150 direct labor-hours.The predetermined overhead rate is closest to:

A) $1.80 per direct labor-hour
B) $5.50 per direct labor-hour
C) $9.20 per direct labor-hour
D) $3.70 per direct labor-hour

Question

Brooke Marie · 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 (which is the variable rate multiplied by the total direct labor-hours) and then dividing by the total direct labor-hours. This gives ($90,000 + ($3.70 * 50,000)) / 50,000 = $5.50 per direct labor-hour.

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