Question

Pools manufactures swimming pool equipment. Falmouth estimates total manufacturing overhead costs next year to be $ 1 comma 500 comma 000. Falmouth also estimates it will use 46 comma 875 direct labor hours and incur $ 1 comma 250 comma 000 of direct labor cost next year. In​ addition, the machines are expected to be run for 50 comma 000 hours. Compute the predetermined manufacturing overhead rate for next year under the following independent​ situations: 1. Assume that the company uses direct labor hours as its manufacturing overhead allocation base. 2. Assume that the company uses direct labor cost as its manufacturing overhead allocation base. 3. Assume that the company uses machine hours as its manufacturing overhead allocation base. 1. Compute the predetermined manufacturing overhead rate for next year assuming that the company uses direct labor hours as its manufacturing overhead allocation base. Identify the formula and compute the predetermined manufacturing overhead rate for next year using direct labor hours as the manufacturing overhead allocation base.

Answer 1

Answer:

1.-  $  32.00

2.- $    1. 20

3.- $  30.00

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

To calculate the predetermined manufacturing overhead rate we divide the expected overhead cost over the cost driver.

1.- In this case 46,875 hours will be the cost dirver:

1,500,000 / 46,875 = 32

2.- if we use labor cost:

1,500,000 / 1,250,000 = 1.2

3.- using machien hours as cost driver:

1,500,000 / 50,000 = 30