Bob's Boats uses job costing. They use direct labor hours as a basis for allocating overhead costs to jobs. Given the following information, calculate Bob's predetermined overhead rate. Input your answer without dollar signs or commas. Round your answer to two decimal places.

Actual Overhead Expense $104038
Estimated (Budgeted) Overhead Expense $110917
Actual Direct Labor Hours $10436
Estimated Direct Labor Hours $11198

An expense related to the creation of a good or service is the overhead rate. Overhead expenses include things like the price of the corporate headquarters that aren't directly related to productivity. In order to distribute or allocate the overhead costs depending on certain metrics, an overhead rate is applied to the direct production-related costs.

In order to more precisely determine the profitability of any product, an additional cost called an overhead rate is added to the direct expenses of manufacturing. In more intricate situations, it may be possible to estimate overhead costs by combining a number of different cost factors.

In most cases, overhead costs are fixed costs, meaning they must be paid whether or not a factory makes one product or a store sells one item.

What is an Overhead Expense?

Additional expenditures that are unrelated to labor, direct materials, or production are known as overhead expenses. They relate to more routine business operations like paying employees in accounting and paying for facilities, and they reflect more static costs.

Whether or not a business generates income, these expenses typically persist. These costs, in contrast to operating expenses, are fixed, which means they may remain constant throughout time.

Facilities costs are overhead costs. Likewise, the organization continues to have additional operating costs, such as insurance premiums and management and administrative wages.

Companies should frequently assess these costs to figure out how to boost profitability. Cutting back on overhead is typically the simplest approach to reduce costs when business is slow. Companies may look over contracts for electrical use, Internet use, and employee phone usage to find savings, or, in some cases, they may choose to hire contract staff rather than full-time employees because it typically costs less to do so since independent contractors are not required to provide benefits.

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