Question

The predetermined overhead allocation rate for Freestyle, Inc., is based on estimated direct labor costs of $400,000 and estimated factory overhead of $500,000. Actual costs incurred were: Direct materials. $250,000 400,000 55,000 125,000 50,000 Direct labor Indirect materials....... Indirect labor............................... Sales commissions............. ..... Factory depreciation................. ......... Property taxes, factory.. Factory utilities..... Advertising ...... Factory equipment rental 170,000 15,000 35,000 62,500 100,000 Calculate the predetermined overhead rate and calculate the overhead applied to production during the year (6 points). A. Predetermined overhead rate: B. Overhead applied:

Answer 1

A)

Predetermined overhead rate = Estimated factory overheads/Estimated direct labor cost

= 500,000/400,000

= $1.25 per direct labor dollar

B)

Overhead applied = Actual direct labor cost x  Predetermined overhead rate

= 400,000 x 1.25

= $500,000

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