BurrAnd Company estimates that annual manufacturing overhead costs will be $600,000. Estimated annual operating activity bases are: direct labor cost $500,000, direct labor hours 50,000, and machine hours 100,000. Compute the predetermined overhead rate for each activity base.
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To compute the predetermined overhead rate for each activity base, we need to divide the estimated annual manufacturing overhead costs by each respective activity base.
1. Direct Labor Cost Activity Base:
Predetermined Overhead Rate = Estimated Annual Manufacturing Overhead Costs / Direct Labor Cost
Predetermined Overhead Rate = $600,000 / $500,000
Predetermined Overhead Rate = 1.2
2. Direct Labor Hours Activity Base:
Predetermined Overhead Rate = Estimated Annual Manufacturing Overhead Costs / Direct Labor Hours
Predetermined Overhead Rate = $600,000 / 50,000
Predetermined Overhead Rate = 12
3. Machine Hours Activity Base:
Predetermined Overhead Rate = Estimated Annual Manufacturing Overhead Costs / Machine Hours
Predetermined Overhead Rate = $600,000 / 100,000
Predetermined Overhead Rate = 6
Therefore, the predetermined overhead rates for each activity base are:
- Direct Labor Cost Activity Base: 1.2
- Direct Labor Hours Activity Base: 12
- Machine Hours Activity Base: 6