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28 February, 09:34

Trek Cycles makes two products: X-1 and X-2. It takes 80,900 direct labor hours to manufacture the X-1 and 93,500 direct labor hours to manufacture the X-2 Line. Overhead consists of $225,000 in the machine setup cost pool and $149,960 in the packaging cost pool. The machine setup pool has 52,000 setups for the X-1 product and 98,000 setups for the X-2 product. The packaging cost pool has 26,000 parts in the X-1 product and 39,200 parts for the X-2 product. Using the traditional cost method of direct labor hours, what is the predetermined overhead rate

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  1. 28 February, 09:45
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    Predetermined manufacturing overhead rate = $2.15 per direct labor hour

    Explanation:

    Giving the following information:

    It takes 80,900 direct labor hours to manufacture the X-1 and 93,500 direct labor hours to manufacture the X-2 Line.

    Total overhead = 225,000 + 149,960 = $374,960

    To calculate the predetermined manufacturing overhead rate we need to use the following formula:

    Predetermined manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

    Predetermined manufacturing overhead rate = 374,960 / (80,900 + 93,500)

    Predetermined manufacturing overhead rate = $2.15 per direct labor hour
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