Nadelson Incorporated makes a single product--an electrical motor used in many long-haul trucks.The company has a standard cost system in which it applies overhead to this product based on the standard labor-hours allowed for the actual output of the period.Data concerning the most recent year appear below: The variable component of the predetermined overhead rate is closest to:
A)$1.26 per labor-hour
B)$1.20 per labor-hour
C)$1.64 per labor-hour
D)$1.57 per labor-hour

Question

Nadelson Incorporated makes a single product--an electrical motor used in many long-haul trucks.The company has a standard cost system in which it applies overhead to this product based on the standard labor-hours allowed for the actual output of the period.Data concerning the most recent year appear below:  The variable component of the predetermined overhead rate is closest to:
A)$1.26 per labor-hour 
B)$1.20 per labor-hour 
C)$1.64 per labor-hour 
D)$1.57 per labor-hour

Quizplus · Accepted Answer

To calculate the variable component of the predetermined overhead rate, we need to subtract the fixed overhead cost per unit from the total overhead cost per unit and divide it by the standard labor-hours allowed per unit.

Variable overhead cost per unit = Total overhead cost per unit - Fixed overhead cost per unit
= $3.78 - $2.20
= $1.58

Variable component of the predetermined overhead rate = Variable overhead cost per unit / Standard labor-hours allowed per unit
= $1.58 / 1.3
= $1.215 or $1.22 approximately

Therefore, the variable component of the predetermined overhead rate is closest to $1.20 per labor-hour, which is option B. Variable component of the predetermined overhead rate = $54,000/45,000 labor-hours
= $1.20 per labor-hour

Nadelson Incorporated Makes a Single Product--An Electrical Motor Used in Many