Question

Q1) FalmouthFalmouth

Pools manufactures swimming pool equipment.

FalmouthFalmouth

estimates total manufacturing overhead costs next year to be $2,500,000.

FalmouthFalmouth

also estimates it will use $37,500 direct labor hours and incur $1,200,000

of direct labor cost next year. In? addition, the machines are expected to be run for 30,000 hours.

Compute the predetermined manufacturing overhead rate for next year under the following independent? situations:

1. Assume that the company uses direct labor hours as its manufacturing overhead allocation base.

2. Assume that the company uses direct labor cost as its manufacturing overhead allocation base.

3. Assume that the company uses machine hours as its manufacturing overhead allocation base.

1. Compute the predetermined manufacturing overhead rate for next year assuming that the company uses direct labor hours as its manufacturing overhead allocation base.

Identify the formula and compute the predetermined manufacturing overhead rate for next year using direct labor hours as the manufacturing overhead allocation base.

					Predetermined manufacturing
		/		=	overhead rate
		/		=		per DL hour

2. Identify the formula and compute the predetermined manufacturing overhead rate for next year using direct labour dollars as the manufacturing overhead allocation base. ​(Round your answer to the nearest whole percent. Abbreviations​ used: DL​ = Direct​ Labour.)

3. Identify the formula and compute the predetermined manufacturing overhead rate for next year using machine hours as the manufacturing allocation base. ​(Round your answer to the nearest whole dollar. Abbreviations​ used: hr​ = hour.)

Answer 1

1. pre determined overhead is obtained by dividing total cost by allocation base

				Predetermined manufacturing
	total manufacturing overhead costs	/	direct labor hours	=	overhead rate
	$2,500,000	/	37500	=	66.67	per DL hour

2.

					Predetermined manufacturing
	total manufacturing overhead costs	/	direct labor dollars	=	overhead rate
	2,500,000	/	1,200,000	=	2.00%

3.

				Predetermined manufacturing
total manufacturing overhead costs	/	machine hours	=	overhead rate
2,500,000	/	30000	83$		per machine hour