Figure 11-4. Kris Company calculates its predetermined rates using practical volume,which is 325,000 units.The standard cost system allows 3 direct labor hours per unit produced.Overhead is applied using direct labor hours.The total budgeted overhead is $4,260,000,of which $994,000 is fixed overhead.The actual results for the year are as follows:
Refer to Figure 11-4.The predetermined fixed overhead rate is
A)$3.35 per direct labor hour.
B)$1.02 per direct labor hour.
C)$5.50 per direct labor hour.
D)$4 per direct labor hour.
E)none of these.

Question

Figure 11-4. Kris Company calculates its predetermined rates using practical volume,which is 325,000 units.The standard cost system allows 3 direct labor hours per unit produced.Overhead is applied using direct labor hours.The total budgeted overhead is $4,260,000,of which $994,000 is fixed overhead.The actual results for the year are as follows:
 Refer to Figure 11-4.The predetermined fixed overhead rate is
A)$3.35 per direct labor hour. 
B)$1.02 per direct labor hour. 
C)$5.50 per direct labor hour. 
D)$4 per direct labor hour. 
E)none of these.

Quizplus · Accepted Answer

Practical volume = 325,000 units
Direct labor hours per unit produced = 3
Total direct labor hours = 325,000 units x 3 direct labor hours per unit = 975,000 direct labor hours
Total budgeted overhead = $4,260,000
Fixed overhead = $994,000

To calculate the predetermined fixed overhead rate:
Predetermined fixed overhead rate = (Total budgeted overhead - Fixed overhead) / Total direct labor hours

Predetermined fixed overhead rate = ($4,260,000 - $994,000) / 975,000 direct labor hours = $2.95 per direct labor hour

Therefore, the correct answer is B) $1.02 per direct labor hour.