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

Question

Mylie Burnett

Business

24 September, 07:00

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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Answers (1)

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Glenn Valentine · 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