Question

Helio Company has two products: A and B. The annual production and sales of Product A is 1,850 units and of Product B is 1,250 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labor-hours per unit and Product B requires 0.6 direct labor-hours per unit. The total estimated overhead for next period is $100,485. What is the company’s predetermined overhead rate?

Answer 1

predetermined overhead rate =  total estimated overhead for next period / direct labor-hours

= $ 100,485 / 1305 direct labor-hours

= $ 77 per direct labor-hour

Hence the correct answer is $ 77 per direct labor-hour

Note:

direct labor-hours =

Product A = 1,850 Units * 0.3 direct labor-hours per unit

= 555 direct labor-hours

Product B = 1,250 units * 0.6direct labor-hours

= 750 direct labor-hours

Total direct labor-hours = 555 + 750

= 1305 direct labor-hours