Question

At the beginning of a year, a company predicts total direct materials costs of $1,020,000 and total overhead costs of $1,300,000. 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

127.45%

Step-by-step explanation:

Data provided

Total overhead cost = $1,300,000

Total direct material cost = $1,020,000

The calculation of predetermined overhead rate is given below:-

Predetermined Overhead rate = Total overhead cost ÷ Total direct material cost × 100

= $1,300,000 ÷ $1,020,000 × 100

= 127.45%

So, for calculating the predetermined overhead rate we simply applied the above formula.