Question

Harris Fabrics computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 29,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $577,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $3.00 per direct labor-hour. Harris's actual manufacturing overhead for the year was $722,648 and its actual total direct labor was 29,500 hours.

Required:

Compute the company's predetermined overhead rate for the year. (Round your answer to 2 decimal places.)

Answer 1

The estimated total manufacturing overhead cost is computed as follows:

Y = $577,000 + ($3.00 per DLH)(29,000 DLHs)

Estimated fixed manufacturing overhead	$577,000
Estimated variable manufacturing overhead($3.00 per DLH × 29,000 DLHs)	$87,000
Estimated total manufacturing overhead cost	$664,000

The predetermined overhead rate is computed as follows:

Predetermined overhead rate = Estimated total manufacturing overhead / Estimated total direct labor hours (DLHs) = $664,000 / 29,000 DLHs = $22.90 per DLH