Cosi Company uses a job order costing system and allocates its overhead on the basis of direct labor costs. Cosi expects to incur $830,000 of overhead during the next period, and expects to use 53,000 labor hours at a cost of $10.00 per hour. What is Cosi Company's predetermined overhead rate?

Question

Horn

Business

15 August, 23:26

Cosi Company uses a job order costing system and allocates its overhead on the basis of direct labor costs. Cosi expects to incur $830,000 of overhead during the next period, and expects to use 53,000 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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Valeria Harding · Answer 1

156.6%

Explanation:

Given:

Cosi Company's Incurred over head for the next period = $830,000

Expected labor hours = 53,000

Cost of labor = $10.00 per hour

Thus,

Total labor cost = 53,000 * $10.00 = $530,000

Now,

the Cosi Company's predetermined overhead rate will be calculated as:

Predetermined overhead rate = Incurred overhead / Total labor cost

on substituting the respective values, we get

Predetermined overhead rate = ($830,000 / 530,000) = 1.566

or

Predetermined overhead rate = 1.566 * 100% = 156.6%