Question

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.

Compute Sigma’s predetermined overhead rate.

Answer 1

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 overhead / Allocation base

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