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Smith Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning...

Smith Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Smith estimated total overhead of $299,600; materials of $404,000 and direct labor of $214,000. During the year Smith incurred $412,000 in materials costs, $414,700 in overhead costs and $218,000 in direct labor costs. Compute the predetermined overhead rate.

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Answer #1

CALCULATION OF PREDETERMINED OVERHEAD RATE

=TOTAL ESTIMATED OVERHEAD/ ESTIMATED DIRECT LABOUR

=$299600/$214000

=1.4

1.4 means whenever there is a $1 inncured on direct labour the cost of overhead will $1.4

NOTE-Estimated overhead and estimated direct labour is taking in formula because when we calculate something predetermined it should be on basis of estimation.

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