Johnson Company estimates that its production workers will work 88,000 direct labor hours to produce 8,800 units during the upcoming period and that overhead costs will amount to $880,000.During the year,its manufacturing employees actually worked 100,000 direct labor hours to produce 10,000 units and incurred $1,100,000 of overhead costs.Because the goods made by Johnson are homogeneous (that is,they are identical),the company has decided it makes sense to use number of units as the allocation base for overhead.Based on this information the predetermined overhead rate is:
A) $110.00 per unit.
B) $10.00 per direct labor hour.
C) $100.00 per unit.
D) $11.00 per direct labor hour.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing total estimated overhead costs by the estimated allocation base. In this case, the estimated allocation base is the number of units to be produced, which is 8,800.

Predetermined overhead rate = Estimated overhead costs / Estimated allocation base
Predetermined overhead rate = $880,000 / 8,800 units
Predetermined overhead rate = $100.00 per unit

Therefore, choice C is the correct answer. Choice A is incorrect because it uses the actual overhead costs and allocation base, rather than the estimated ones. Choice B is incorrect because it uses the actual direct labor hours worked, rather than the estimated ones. Choice D is incorrect because it uses the actual overhead costs and actual direct labor hours worked, rather than the estimated ones.

Johnson Company Estimates That Its Production Workers Will Work 88,000