The Liang Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine-hours in Dept. B.

At the beginning of the year, the Corporation made the following estimates:

Dept. A Dept. B

Direct labor cost $60,000 $40,000

Manufacturing overhead $90,000 $45,000

Direct labor-hours 6,000 9,000

Machine-hours 2,000 15,000

What predetermined overhead rates would be used in Dept. A and Dept. B, respectively?

Instructions are below.

Explanation:

Giving the following information:

A Dept. B

Direct labor cost $60,000 $40,000

Manufacturing overhead $90,000 $45,000

Machine-hours 2,000 15,000

To calculate the predetermined overhead rate for each department, we need to use the following formula:

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

Dept A:

Estimated manufacturing overhead rate = 90,000/60,000 = $1.5 per direct labor cost

Dept B:

Estimated manufacturing overhead rate=45,000/15,000 = $3 per machine hour