Question

# 2. Sigma Corporation estimates its plantwide predetermined overhead rate annually on the basis of direct labor-hours....

2. Sigma Corporation estimates its plantwide predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 34,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated \$559,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of \$4.00 per direct labor-hour. Sigma’s actual manufacturing overhead cost for the year was \$758,696 and its actual total direct labor was 34,500 hours.

Solution:

Predermined overhead rate = \$20.44per labour hr

Explanation:

Predetmined overhead rate is caculated on the estimates not on the actuals

Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total direct labour hours

 Estimated fixed manufacturing overhead \$559,000 Estimated variable manufacturing overhead (\$4 x 34000) \$136,000 Estimated total manufacturing overhead cost (559,000+136,000) \$695,000 Estimated total direct labour hours 34,000 Predetermined overhead rate (\$695,000 / 34000) \$20.44 per labour hr

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