Acme,Inc.had overhead of $310,000 during the year when $260,000 in labor costs were incurred.Estimates at the start of the year for overhead and labor costs were $300,000 for overhead and $250,000 for labor costs.The predetermined overhead rate would be:
A)101.67%.
B)104.00%.
C)120.00%.
D)83.33%.

Question

Quizplus · Accepted Answer

Predetermined overhead rate is calculated by dividing estimated overhead costs by estimated labor costs.

Predetermined overhead rate = Estimated overhead costs / Estimated labor costs

= $300,000 / $250,000

= 1.2

Therefore, the predetermined overhead rate is 120% or 1.2.

To verify:

Overhead applied = Predetermined overhead rate x Actual labor costs

= 1.2 x $260,000

= $312,000

This is close to the actual overhead costs of $310,000. Therefore, choice C is the best answer.

Acme,Inchad Overhead of $310,000 During the Year When $260,000 in Labor