Nemes Incorporated makes a single product--a cooling coil used in commercial refrigerators.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 fixed component of the predetermined overhead rate is closest to:
A)$9.10 per labor-hour
B)$5.35 per labor-hour
C)$6.36 per labor-hour
D)$10.81 per labor-hour

Question

Nemes Incorporated makes a single product--a cooling coil used in commercial refrigerators.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 fixed component of the predetermined overhead rate is closest to:
A)$9.10 per labor-hour 
B)$5.35 per labor-hour 
C)$6.36 per labor-hour 
D)$10.81 per labor-hour

Quizplus · Accepted Answer

To calculate the predetermined overhead rate for Nemes Incorporated, we need to divide the total estimated overhead costs by the total standard labor-hours allowed.

Total estimated overhead costs = $510,000 (fixed) + $91,800 (variable) = $601,800

Total standard labor-hours allowed = 92,000

Predetermined overhead rate = $601,800 ÷ 92,000 = $6.54 per labor-hour

Therefore, the fixed component of the predetermined overhead rate is $6.54 - $0.18 = $6.36 per labor-hour. Option C is the closest to this value. Fixed component of the predetermined overhead rate = $324,360/51,000 labor-hours
= $6.36 per labor-hour

Nemes Incorporated Makes a Single Product--A Cooling Coil Used in Commercial