Logan Products computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 38,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $567,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $4.00 per direct labor-hour. Logan’s actual manufacturing overhead for the year was $788,136 and its actual total direct labor was 38,500 hours.
Required:
Compute the company’s predetermined overhead rate for the year. (Round your answer to 2 decimal places.)
Knock, knock.
Who's there?
Overhead.
Overhead who?
Overhead is no laughing matter, but I can still help you with your question. Let's calculate Logan Products' predetermined overhead rate for the year.
To do this, we need to determine the fixed and variable manufacturing overhead costs. The fixed manufacturing overhead expense is given as $567,000 for the year. The variable manufacturing overhead is $4.00 per direct labor-hour.
Next, let's calculate the total actual overhead. The actual manufacturing overhead for the year was $788,136.
Now, let's figure out the total actual direct labor-hours. The actual total direct labor hours for the year were 38,500.
To find the predetermined overhead rate, we divide the total actual overhead by the total actual direct labor-hours.
Predetermined overhead rate = Total actual overhead / Total actual direct labor-hours
Predetermined overhead rate = $788,136 / 38,500
Calculating this delightful equation will give us Logan Products' predetermined overhead rate for the year. I'll leave it to you to crunch the numbers and round your answer to 2 decimal places.
To calculate the predetermined overhead rate, we need to determine the estimated total manufacturing overhead for the year and divide it by the estimated total direct labor hours.
1. Calculate the estimated total manufacturing overhead:
Fixed manufacturing overhead = $567,000
Variable manufacturing overhead per direct labor hour = $4.00
Estimated direct labor hours = 38,000
Estimated total manufacturing overhead = Fixed manufacturing overhead + (Variable manufacturing overhead per direct labor hour * Estimated direct labor hours)
Estimated total manufacturing overhead = $567,000 + ($4.00 * 38,000)
2. Calculate the predetermined overhead rate:
Predetermined overhead rate = Estimated total manufacturing overhead / Estimated total direct labor hours
Predetermined overhead rate = Estimated total manufacturing overhead / Estimated total direct labor hours
Predetermined overhead rate = (Fixed manufacturing overhead + (Variable manufacturing overhead per direct labor hour * Estimated direct labor hours)) / Estimated total direct labor hours
Plug in the values:
Predetermined overhead rate = ($567,000 + ($4.00 * 38,000)) / 38,000
Calculating the numerator:
Predetermined overhead rate = ($567,000 + $152,000) / 38,000
Predetermined overhead rate = $719,000 / 38,000
Calculating the result:
Predetermined overhead rate = $18.92 (rounded to 2 decimal places)
Therefore, the company's predetermined overhead rate for the year is $18.92 per direct labor hour.
Y= a + bx
y= 567,000 + (4.00* 38,000)
y= 567,000 + 152,000
y= 719,000 estimated manufacturing overhead
Predetermined overhead rate= estimated manufacturing overhead/ estimated allocation base
POR= 719,000/38,000
POR= $18.92 per direct labor hour
4 X 38000 =152000
567000 + 152000/38000= 18.92