At the beginning of a year, a company predicts total direct materials costs of $1,020,000 and total overhead costs of $1,220,000. 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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Business

Serena Moran

22 September, 19:47

At the beginning of a year, a company predicts total direct materials costs of $1,020,000 and total overhead costs of $1,220,000. 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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Yasmin Mccoy · Answer 1

Predetermined manufacturing overhead rate = $1.961 per direct material dollar

Explanation:

Giving the following information:

At the beginning of a year, a company predicts total direct materials costs of $1,020,000 and total overhead costs of $1,220,000.

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

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

Predetermined manufacturing overhead rate = 1,220,000/1,020,000

Predetermined manufacturing overhead rate = $1.961 per direct material dollar