If annual overhead costs are expected to be $800,000 and direct labor costs are expected to be $1,000,000, then if the activity base is direct labor costs:
A) $1.25 is the predetermined overhead rate.
B) for every dollar of manufacturing overhead, 80 cents of direct labor will be assigned.
C) for every dollar of direct labor, 80 cents of manufacturing overhead will be assigned.
D) a predetermined overhead rate cannot be determined.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the total expected overhead costs by the total expected direct labor costs. $800,000 / $1,000,000 = 0.80, meaning for every dollar of direct labor, 80 cents of manufacturing overhead will be assigned.

If Annual Overhead Costs Are Expected to Be $800,000 and Direct