ABC Corporation allocates overhead based on direct labor cost.Assume ABC expects to incur a total of $1,025,000 in overhead costs and $820,000 in direct labor costs.Actual overhead costs incurred totaled $1,050,000 and actual direct labor costs totaled $800,100.ABC's predetermined overhead rate is closest to
A)125% of direct labor cost.
B)128% of direct labor cost.
C)98% of direct labor costs.
D)100% of direct labor costs.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated based on expected costs, not actual costs. It is found by dividing expected overhead costs by expected direct labor costs: $1,025,000 / $820,000 = 1.25 or 125%.

ABC Corporation Allocates Overhead Based on Direct Labor Cost