Krier Corporation uses a predetermined overhead rate that was based on estimated total fixed manufacturing overhead of $738,000 and 30,000 direct labor-hours for the period. The company incurred actual total fixed manufacturing overhead of $792,000 and 31,500 total direct labor-hours during the period.The predetermined overhead rate is closest to:
A) $26.40
B) $25.14
C) $23.43
D) $24.60

Question

Quizplus · Accepted Answer

Predetermined overhead rate = Estimated total fixed manufacturing overhead / Estimated total direct labor-hours

Using the given information, we can calculate the predetermined overhead rate as follows:

Predetermined overhead rate = $738,000 / 30,000 = $24.60 per direct labor-hour

To check if this predetermined rate is suitable for actual overhead, we can calculate the total overhead applied based on actual direct labor-hours:

Total overhead applied = Predetermined overhead rate x Actual direct labor-hours

Total overhead applied = $24.60 x 31,500 = $775,500

Since the actual fixed manufacturing overhead is $792,000, we can see that the predetermined overhead rate is slightly lower tha the actual overhead. This is expected, as the predetermined rate is based on estimated values.

Therefore, the closest predetermined overhead rate is $24.60 per direct labor-hour, which is option D.

Krier Corporation Uses a Predetermined Overhead Rate That Was Based