Harris Fabrics computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 20,000 direct labor-hours would be required for the period? estimated level of production. The company also estimated $94,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $2.00 per direct labor-hour. Harris's actual manufacturing overhead for the year was $123,900 and its actual total direct labor was 21,000 hours.
Compute the company's predetermined overhead rate for the year.
6.7
6.70
To compute Harris Fabrics' predetermined overhead rate for the year, you need to add up the fixed manufacturing overhead expenses and the variable manufacturing overhead expenses, and then divide that total by the estimated direct labor-hours for the year.
First, let's calculate the total variable manufacturing overhead expenses. Multiply the variable manufacturing overhead rate ($2.00 per direct labor-hour) by the actual total direct labor-hours (21,000 hours):
Variable manufacturing overhead expenses = $2.00/direct labor-hour × 21,000 direct labor-hours
Variable manufacturing overhead expenses = $42,000
Next, add the fixed manufacturing overhead expenses ($94,000) to the variable manufacturing overhead expenses ($42,000) to get the total manufacturing overhead expenses:
Total manufacturing overhead expenses = $94,000 + $42,000
Total manufacturing overhead expenses = $136,000
Finally, divide the total manufacturing overhead expenses ($136,000) by the estimated direct labor-hours (20,000 hours) to find the predetermined overhead rate:
Predetermined overhead rate = Total manufacturing overhead expenses / Estimated direct labor-hours
Predetermined overhead rate = $136,000 / 20,000 direct labor-hours
Predetermined overhead rate = $6.80/direct labor-hour
Therefore, the company's predetermined overhead rate for the year is $6.80 per direct labor-hour.