The cost accountant for Kenner Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning May 1 would be $140,000, and total direct labor costs would be $100,000. During May, the actual direct labor cost totaled $13,500, and factory overhead cost incurred totaled $19,200. Required: What is the predetermined factory overhead rate based on direct labor cost?

Question

Business

Iris Goodwin

27 November, 06:44

The cost accountant for Kenner Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning May 1 would be $140,000, and total direct labor costs would be $100,000. During May, the actual direct labor cost totaled $13,500, and factory overhead cost incurred totaled $19,200. Required: What is the predetermined factory overhead rate based on direct labor cost?

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Steven · Answer 1

The 140% is the predetermined factory overhead rate based on direct labor cost.

Explanation:

The given information is shown below:

Total factory overhead cost - $140,000

Total direct labor costs - $100,000

Actual direct labor cost - $13,500

Factory overhead cost - $19,200

By using these information, it is easy to compute predetermined factory overhead rate which is based on direct labor cost. The formula is shown below:

= Total factory overhead cost : Total factory overhead cost

= ($140,000 : $100,000) * 100

= 1.4 * 100

= 140%

Other cost is irrelevant and thus not be considered while computing predetermined factory overhead rate.

Hence, the 140% is the predetermined factory overhead rate based on direct labor cost.