Question

Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 62,500 direct labor-hours would be required for the period’s estimated level of client service. The company also estimated $437,500 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firm’s actual overhead cost for the year was $458,000 and its actual total direct labor was 67,150 hours. Required: 1. Compute the predetermined overhead rate

Answer 1

The predetermined overhead rate is $7.5

Step-by-step explanation:

The computation of the predetermined overhead rate is shown below:

= predetermined fixed overhead rate + predetermined variable overhead rate

where,

Predetermined fixed overhead rate = (Fixed overhead cost ÷ estimated direct labor)

= $437,500 ÷ 62,500 direct labor

= $7

And, the predetermined variable overhead rate is $0.50

Now put these values to the above formula

So, the value would equal to

= $7 + $0.5

= $7.5