Federer Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: If Federer Company uses direct labor hours as the allocation base, what would the predetermined manufacturing overhead rate be?

Question

Federer Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year:  If Federer Company uses direct labor hours as the allocation base, what would the predetermined manufacturing overhead rate be?

Quizplus · Accepted Answer

To calculate the predetermined manufacturing overhead rate, we need to divide the total estimated manufacturing overhead costs by the total estimated direct labor hours.

Total estimated manufacturing overhead costs = $204,000 + $51,000 = $255,000 
Total estimated direct labor hours = 150,000

Predetermined manufacturing overhead rate = Total estimated manufacturing overhead costs / Total estimated direct labor hours 
= $255,000 / 150,000 
= $1.70 per direct labor hour

Therefore, the best choice is B.

Federer Company Is Debating the Use of Direct Labor Cost