At the beginning of a year, a company predicts total direct materials costs of $910,000 and total overhead costs of $1,250,000. If the company uses direct materials costs as its activity base to apply overhead, what is the predetermined overhead rate it should use during the year

Question

Business

Cristina Hancock

19 February, 09:39

At the beginning of a year, a company predicts total direct materials costs of $910,000 and total overhead costs of $1,250,000. If the company uses direct materials costs as its activity base to apply overhead, what is the predetermined overhead rate it should use during the year

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Answers (1)

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Oscar Weber · Answer 1

Estimated manufacturing overhead rate = $1.374 per direct material cost dollar

Explanation:

Giving the following information:

A company predicts total direct materials costs of $910,000 and total overhead costs of $1,250,000.

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

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

Estimated manufacturing overhead rate = 1,250,000/910,000

Estimated manufacturing overhead rate = $1.374 per direct material cost dollar