The managers of Red Heart Draperies are planning for the upcoming year.In years past,the company has applied overhead based on direct labor costs.However,management believes that direct labor hours are a better basis for applying overhead and plans to use direct labor hours to apply overhead for the upcoming year. What is the predetermined overhead rate for the upcoming year round all answers to the nearest cent?

Question

The managers of Red Heart Draperies are planning for the upcoming year.In years past,the company has applied overhead based on direct labor costs.However,management believes that direct labor hours are a better basis for applying overhead and plans to use direct labor hours to apply overhead for the upcoming year.  What is the predetermined overhead rate for the upcoming year round all answers to the nearest cent?

Quizplus · Accepted Answer

Since the company is planning to use direct labor hours as the basis for applying overhead, they need to calculate the predetermined overhead rate using the estimated total overhead costs and the estimated total direct labor hours. The information for these estimates is given in the problem: 
Estimated total overhead costs = $327,600 
Estimated total direct labor hours = 15,000 
Thus, the predetermined overhead rate is: 
$327,600 / 15,000 = $21.84/DLH (rounded to the nearest cent) 
Therefore, the best choice is B.

The Managers of Red Heart Draperies Are Planning for the Upcoming