Providence Company uses departmental manufacturing overhead rates to apply overhead.Direct labour cost is used to apply manufacturing overhead in Department A and machine hours are used for Department B. $\begin{array}{|l|c|c|}
\hline & \text { Dept. A } & \text { Dept. B } \
\hline \text { Direct labour cost } & \$ 56,000 & \$ 33,000 \
\hline \text { Factory overhead } & \$ 67,200 & \$ 45,000 \
\hline \text { Direct labour hours } & 8,000 & \
& & 9,000 \
\hline \text { Machine hours } & 4,000 & 15,000 \
\hline
\end{array}$ What predetermined overhead rate would be used for departments A and B,respectively?

Question

Quizplus · Accepted Answer

The predetermined overhead rate for Department A is calculated by dividing the factory overhead by the direct labor cost: $\frac{\$67,200}{\$56,000} = 1.2$ or 120%. For Department B, it's calculated by dividing the factory overhead by the machine hours: $\frac{\$45,000}{15,000 \text{ hours}} = \$3$ per machine hour.

Providence Company Uses Departmental Manufacturing Overhead Rates to Apply Overhead