The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs.The predetermined overhead rate is based on labor cost in Dept.A and on machine-hours in Dept.B.At the beginning of the year, the Corporation made the following estimates: What predetermined overhead rates would be used in Dept.A and Dept.B, respectively?
A)67% and $3.00
B)150% and $5.00
C)150% and $3.00
D)67% and $5.00

Question

The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs.The predetermined overhead rate is based on labor cost in Dept.A and on  machine-hours in Dept.B.At the beginning of the year, the Corporation made the following estimates:  What predetermined overhead rates would be used in Dept.A and Dept.B, respectively?
A)67% and $3.00 
B)150% and $5.00 
C)150% and $3.00 
D)67% and $5.00

Quizplus · Accepted Answer

The predetermined overhead rate for Dept. A is calculated by dividing the estimated total manufacturing overhead cost for Dept. A by the estimated total labor cost for Dept. A. 
$840,000/$560,000 = 150%
The predetermined overhead rate for Dept. B is calculated by dividing the estimated total manufacturing overhead cost for Dept. B by the estimated total machine hours for Dept. B. 
$480,000/160,000 = $3.00
Therefore, the correct answer is C. Dept.A
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base
Predetermined overhead rate = $90,000 ÷ $60,000 = 150% of direct labor cost
Dept.B
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base
Predetermined overhead rate = $45,000 ÷ 15,000 machine-hours = $3.00 per machine-hour

The Silver Corporation Uses a Predetermined Overhead Rate to Apply