The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine-hours in Dept. B. At the beginning of the year, the Corporation made the following estimates: What predetermined overhead rates would be used in Dept. A and Dept. B, respectively?
A) 67% and $3.00
B) 150% and $5.00
C) 150% and $3.00
D) 67% and $5.00

Question

The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine-hours in Dept. B. At the beginning of the year, the Corporation made the following estimates:  What predetermined overhead rates would be used in Dept. A and Dept. B, respectively?
A) 67% and $3.00 
B) 150% and $5.00 
C) 150% and $3.00 
D) 67% and $5.00

Quizplus · Accepted Answer

Dept. A Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base Predetermined overhead rate = $90,000 ÷ $60,000 = 150% of direct labor cost
Dept. B Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base Predetermined overhead rate = $45,000 ÷ 15,000 machine-hours = $3.00 per machine-hour

The Silver Corporation Uses a Predetermined Overhead Rate to Apply