Question

Harris Fabrics computes its plantwide 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’s estimated level of production. The company also estimated $94,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of $2.00 per direct labor-hour. Harris's actual manufacturing overhead cost for the year was $123,900 and its actual total direct labor was 21,000 hours. Required: Compute the company's plantwide predetermined overhead rate for the year. (Round your answer to 2 decimal places.

Answer 1

Answer:

$6.7 per direct labor hour

Explanation:

Given:

Direct labor-hours = 20,000

Fixed manufacturing overhead cost = $94,000

variable manufacturing overhead = $2.00 per direct labor-hour

Actual manufacturing overhead cost for the year = $123,900

Actual total direct labor = 21,000 hours

Now,

Total Estimated Manufacturing Overhead

= 94000 + ( 2 × 20000 )

= $134,000

And,

Predetremined Overhead Rate = $\frac{\textup{Estimated Maufacturing Overhead}}{\textup{Estimated Direct Labor Hours.}}$

or

Predetremined Overhead Rate = $\frac{\textup{134,000}}{\textup{20000}}$

or

Predetremined Overhead Rate = $6.7 per direct labor hour

Answer 2

The overhead costs are referred to as such costs which are borne by the producer over and above the direct costs like raw materials and labors required for production.

The correct statement is that the predetermined overhead costs for Harris Fabrics will be $6.7 per direct labor hour when the conditions as above are met.

How to calculate the overheads costs?

To compute the predetermined overhead costs, the estimated manufacturing overhead will need to be computed using the information given above,

The information given above will be computed into the formula below as,

$\rm Est.\ Manufacturing\ Overheads= Manufacturing\ Costs+(Variable\ Cost\ x\ Available\ Labor Hours)\\\\\rm Est.\ Manufacturing\ Overheads= 94000+(2\ x\ 20000)\\\\\rm Est.\ Manufacturing\ Overheads= \ 134000$

Now, the formula for the computation of the predetermined overhead costs is as given below,

$\rm Overhead\ Costs= \dfrac{Estimated\ Overhead\ Costs}{Estimated\ Labor\ Hours}\\\\\rm Overhead\ Costs= \dfrac{134000}{20000}\\\\\rm Overhead\ Costs= \ 6.7 per\ unit$

Hence, the estimated overhead costs for Harris Fabrics for the year are calculated as $6.7 per unit for the given labor hours.

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