Cosi Company uses a job order costing system and allocates its overhead on the basis of direct labor costs. Cosi expects to incur $800,000 of overhead during the next period, and expects to use 50,000 labor hours at a cost of $10.00 per hour. What is Cosi Company's predetermined overhead rate?

Question

Business

Jamie Arnold

27 August, 10:39

Cosi Company uses a job order costing system and allocates its overhead on the basis of direct labor costs. Cosi expects to incur $800,000 of overhead during the next period, and expects to use 50,000 labor hours at a cost of $10.00 per hour. What is Cosi Company's predetermined overhead rate?

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Answers (1)

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Sydney Kirk · Answer 1

160%

Explanation:

From the question above Cosi company is expected to incur $800,000 of overhead during the next period.

They are also expected to use 50,000 labor hours at a cost of $10 per hour

The first step is to find the estimated direct labor costs

= 50,000 * $10

= $500,000

Estimated direct labor cost = $500,000

The next step is to find the estimated overhead rate

Estimated overhead rate = Estimated overhead/Estimated direct labor costs

= 800,000/500,000

= 1.6 * 100

= 160%

Hence the predetermined overhead rate for Cosi company is 160%