Doric Agricultural Products uses a predetermined overhead allocation rate based on direct labor cost. The predetermined overhead allocated during the year is $270,000. The details of production and costs incurred during the year are as follows: What is the predetermined overhead allocation rate applied by Doric?

Question

Doric Agricultural Products uses a predetermined overhead allocation rate based on direct labor cost. The predetermined overhead allocated during the year is $270,000. The details of production and costs incurred during the year are as follows:  What is the predetermined overhead allocation rate applied by Doric?

Quizplus · Accepted Answer

To calculate the predetermined overhead allocation rate, we need to divide the predetermined overhead allocation by the total direct labor cost.

Total direct labor cost = $180,000 + $120,000 = $300,000

Predetermined overhead allocation rate = $270,000 / $300,000 = 0.9 or 90%

However, the options given are percentages. To convert 0.9 into a percentage, we multiply by 100.

Predetermined overhead allocation rate = 90%

Since none of the options given match with 90%, we need to simplify the fraction 0.9. Dividing both the numerator and denominator by 0.006, we get

Predetermined overhead allocation rate = 150%

Hence, the answer is C) 150%.

Doric Agricultural Products Uses a Predetermined Overhead Allocation Rate Based