The controller for Jack's Rabbits, Inc., estimates that the company's ﬁxed overhead is $150,000 per year.He also has determined that the variable overhead is approximately $0.20 per rabbit raised and sold.Since the company has a single product, overhead is applied on the basis of output units, or in other words, rabbits raised and sold. What is the predetermined overhead rate per rabbit if the output estimate or prediction is 150,000 rabbits?
A)$1.00
B)$0.20
C)$1.20
D)$3.00
E)$7.50

Question

Quizplus · Accepted Answer

To calculate the predetermined overhead rate per rabbit, we need to divide the estimated total overhead cost by the estimated output units:

Predetermined overhead rate = (Fixed overhead cost + Variable overhead cost) / Estimated output units

Fixed overhead cost = $150,000
Variable overhead cost per rabbit = $0.20
Estimated output units = 150,000 rabbits

Predetermined overhead rate = ($150,000 + ($0.20 x 150,000)) / 150,000 = $30,000 / 150,000 = $0.20 + $1.00 = $1.20

Therefore, the predetermined overhead rate per rabbit is $1.20, which is choice C.

The Controller for Jack's Rabbits, Inc