Odds and Sodds Company, a local furniture manufacturer applies its manufacturing overhead to products based on direct labour hours. The Company estimates that fixed overhead will be $100,000 per year, variable overhead will be $1.00 per direct labour hour and the estimated total direct labour hours will be 40,000 per year. On the basis of this information, the Company's predetermined overhead rate will be.

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The predetermined overhead rate is calculated by dividing the total estimated overhead costs by the estimated total direct labour hours. Total overhead costs = Fixed overhead ($100,000) + Variable overhead ($1.00 * 40,000 hours) = $140,000. Predetermined overhead rate = $140,000 / 40,000 hours = $3.50 per direct labour hour.

Odds and Sodds Company, a Local Furniture Manufacturer Applies Its