At the beginning of a year, a company predicts total direct materials costs of $1,020,000 and total overhead costs of $1,300,000. If the company uses direct materials costs as its activity base to allocate overhead, what is the predetermined overhead rate it should use during the year?

Question

Business

Cesar Mcconnell

2 August, 20:26

At the beginning of a year, a company predicts total direct materials costs of $1,020,000 and total overhead costs of $1,300,000. If the company uses direct materials costs as its activity base to allocate overhead, what is the predetermined overhead rate it should use during the year?

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Answers (1)

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Amari Anthony · Answer 1

127.45%

Explanation:

Data provided

Total overhead cost = $1,300,000

Total direct material cost = $1,020,000

The calculation of predetermined overhead rate is given below:-

Predetermined Overhead rate = Total overhead cost : Total direct material cost * 100

= $1,300,000 : $1,020,000 * 100

= 127.45%

So, for calculating the predetermined overhead rate we simply applied the above formula.