Marvel Company uses a predetermined overhead rate in applying overhead to production orders on a labor-cost basis in Department A and on a machine-hours basis in Department B. At the beginning of the most recently completed year, the company made the following estimates:
$$\begin{array} { l r r }
& \text { Dept. A } & \text { Dept. B } \
\text { Direct labor cost } & \$ 56,000 & \$ 33,000 \
\text { Factory overhead } & \$ 67,200 & \$ 45,000 \
\text { Direct labor-hours } & 8,000 & 9,000 \
\text { Machire-hours } & 4,000 & 15,000
\end{array}$$
What predetermined overhead rate would be used in Department A and Department B, respectively?
A) 83% and $5.
B) 83% and $3.
C) 120% and $3.
D) 120% and $5.

Question

Marvel Company uses a predetermined overhead rate in applying overhead to production orders on a labor-cost basis in Department A and on a machine-hours basis in Department B. At the beginning of the most recently completed year, the company made the following estimates:
$$\begin{array} { l r r } 
& \text { Dept. A } & \text { Dept. B } \
\text { Direct labor cost } & \$ 56,000 & \$ 33,000 \
\text { Factory overhead } & \$ 67,200 & \$ 45,000 \
\text { Direct labor-hours } & 8,000 & 9,000 \
\text { Machire-hours } & 4,000 & 15,000
\end{array}$$
What predetermined overhead rate would be used in Department A and Department B, respectively?
A) 83% and $5.
B) 83% and $3.
C) 120% and $3.
D) 120% and $5.

Quizplus · Accepted Answer

The predetermined overhead rate for Department A is calculated as (Factory overhead / Direct labor cost) = $67,200 / $56,000 = 120%. For Department B, it is (Factory overhead / Machine-hours) = $45,000 / 15,000 = $3 per machine-hour.

Marvel Company Uses a Predetermined Overhead Rate in Applying Overhead