At the beginning of a year, a company predicts total direct materials costs of $1,020,000 and total overhead costs of $1,300,000. If the company uses direct materials costs as its activity base to allocate overhead, what is the predetermined overhead rate it should use during the year?

Question

Skipper

Business

12 September, 07:05

At the beginning of a year, a company predicts total direct materials costs of $1,020,000 and total overhead costs of $1,300,000. If the company uses direct materials costs as its activity base to allocate overhead, what is the predetermined overhead rate it should use during the year?

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Answers (1)

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Manatee · Answer 1

127.45%

Explanation:

Data provided

Total overhead cost = $1,300,000

Total direct material cost = $1,020,000

The calculation of predetermined overhead rate is given below:-

Predetermined Overhead rate = Total overhead cost : Total direct material cost * 100

= $1,300,000 : $1,020,000 * 100

= 127.45%

So, for calculating the predetermined overhead rate we simply applied the above formula.