Question

Exercise 2-1 (Algo) Compute a Predetermined Overhead Rate [LO2-1] Harris Fabrics computes its plantwide predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 30,000 direct labor-hours would be required for the period's estimated level of production. The company also estimated $530,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of $4.00 per direct labor-hour. Harris's actual manufacturing overhead cost for the year was $711,158 and its actual total direct labor was 30,500 hours. Required: Compute the company's plantwide predetermined overhead rate for the year. (Round your answer to 2 decimal places.) per DLH Predetermined overhead rato

Answer 1

Pre determined overhead Rate = Total Estimated manufacturing overhead cost / Total Estimated allocation base

                                                  = $650,000/ 30,000

                                                  = $ 21.67 per labour hour

Working Notes:

It is given in the question that, Harris fabrics computes the Pre determined overhead rate on the basis of direct labour hours. So the Total Estimated Allocation base is the Estimated Direct labour hours.i.e. 30,000 Hours.

Total Estimated Manufacturing Overhead Cost = Estimated Fixed Manufacturing overhead cost + Estimated Variable Manufacturing Overhead cost

Fixed manufacturing cost is given in the question .ie.. $530,000

Calculation of Estimated Varible Manufacturing cost:

                     Estimated variable manufacturing overhead cost = $4 per direct labour hour

                                                  Estimated Direct labour hours = 30,000 hours

Therefore,

        Estimated Varible Manufacturing cost = Estimated variable manufacturing overhead cost * Estimated Direct

                                                                         labour hours

                                                                   = $4 * 30,000 hrs

   = $120,000

Total Estimated Manufacturing Overhead Cost = $530,000 + $120,000

                                                                           = $650,000