Question

At the beginning of a year, a company predicts total direct materials costs of $1,010,000 and total overhead costs of $1,270,000. If the company uses direct materials costs as its activity base to allocate overhead, what is the predetermined overhead rate it should use during the year?

Answer 1

1.267 = Overhead Rate

Step-by-step explanation:

As general approach, the manufacturing rate, along with any rate is done by dividing the cost by a cost driver.

`(Cost\:Of\: Manufacturing\: Overhead)/(Cost\: Driver)= $Overhead \:Rate`

In this case teh cost is the manufacturing overhead and the cost driver the direct materials cost:

`(1,270,000)/(1,010,000)= $Overhead Rate`

Using Direct Materials cost, the rate would be:

`1.257425743= $Overhead Rate`