The Watts Company uses predetermined overhead rates to apply manufacturing overhea? to jobs. The predetermined overhead rate is based on labour cost in Dept. A and on machine hours in Dept. B. At the beginning of the year, the company made the following estimates: $$\begin{array} { | l | l | l | }
\hline & \text { Dept } A & \text { Dept } B \
\hline \text { Direct labour cost } & \$ 30,000 & \$ 40,000 \
\hline \text { Manufacturing overhead } & 60,000 & 50,000 \
\hline \text { Direct labour hours } & 6,000 & 8,000 \
\hline \text { Machine hours } & 2,000 & 10,000 \
\hline
\end{array}$$ What predetermined overhead rates would be used in Dept A and Dept B, respectively?
A)110% and $15.00.
B)50% and $8.00.
C)50% and $5.00.
D)200% and $5.00.

Question

The Watts Company uses predetermined overhead rates to apply manufacturing overhea? to jobs. The predetermined overhead rate is based on labour cost in Dept. A and on machine hours in Dept. B. At the beginning of the year, the company made the following estimates: $$\begin{array} { | l | l | l | } 
\hline & \text { Dept } A & \text { Dept } B \
\hline \text { Direct labour cost } & \$ 30,000 & \$ 40,000 \
\hline \text { Manufacturing overhead } & 60,000 & 50,000 \
\hline \text { Direct labour hours } & 6,000 & 8,000 \
\hline \text { Machine hours } & 2,000 & 10,000 \
\hline
\end{array}$$ What predetermined overhead rates would be used in Dept A and Dept B, respectively?
A)110% and $15.00.
B)50% and $8.00.
C)50% and $5.00.
D)200% and $5.00.

Quizplus · Accepted Answer

The predetermined overhead rate for Dept A is calculated as the manufacturing overhead divided by the direct labor cost, which is $60,000 / $30,000 = 200%. For Dept B, it is calculated as the manufacturing overhead divided by the machine hours, which is $50,000 / 10,000 hours = $5.00 per machine hour.

The Watts Company Uses Predetermined Overhead Rates to Apply Manufacturing