A manufacturer of industrial equipment has a standard costing system based on standard direct labor-hours (DLHs)as the measure of activity.Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: What is the predetermined overhead rate to the nearest cent?
A)$16.97.
B)$17.25.
C)$16.59.
D)$17.65.

Question

A manufacturer of industrial equipment has a standard costing system based on standard direct labor-hours (DLHs)as the measure of activity.Data from the company's flexible budget for manufacturing overhead are given below:  The following data pertain to operations for the most recent period:  What is the predetermined overhead rate to the nearest cent?
A)$16.97. 
B)$17.25. 
C)$16.59. 
D)$17.65.

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as follows:

Predetermined overhead rate = Estimated total overhead cost / Estimated total amount of activity

Using the numbers from the flexible budget, the estimated total overhead cost is $208,500 and the estimated total amount of activity is 12,100 DLHs.

Predetermined overhead rate = $208,500 / 12,100 DLHs 
Predetermined overhead rate = $17.23 per DLH

Rounding to the nearest cent, the predetermined overhead rate is $17.25 per DLH (answer B).

A Manufacturer of Industrial Equipment Has a Standard Costing System