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 39,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $503,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of $3.00 per direct labor-hour. Harris’s actual manufacturing overhead cost for the year was $691,149 and its actual total direct labor was 39,500 hours.
Compute the company’s plantwide predetermined overhead rate for the year. (Round your answer to 2 decimal places.)
Answer- The predetermined overhead rate is = $15.89 per direct labor hour.
Explanation- Predetermined overhead rate = Estimated total Manufacturing Overhead / Estimated total direct labor hours
= $620,000/39,000 direct labor hours
= $15.89 per direct labor hour
Where- Estimated total Manufacturing Overhead = Estimated variable manufacturing overhead+ Estimated fixed manufacturing overhead
Estimated variable manufacturing overhead = Variable manufacturing overhead per hour* Estimated direct labor hours
= $3.00 per direct labor hour*39,000 direct labor hours
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