Brumpy Ltd uses a predetermined overhead rate in applying overhead costs to product, using direct labour costs for cost centre A and machine hours for cost centre B. The estimates for this year are:
What are the predetermined overhead rates for cost centres A and B?
A) $140 and $7.50
B) $1.40 and $7.50
C) $8.75 and $30
D) $1.40 and $4.29

Question

Brumpy Ltd uses a predetermined overhead rate in applying overhead costs to product, using direct labour costs for cost centre A and machine hours for cost centre B. The estimates for this year are: 
What are the predetermined overhead rates for cost centres A and B?
A) $140 and $7.50 
B) $1.40 and $7.50 
C) $8.75 and $30 
D) $1.40 and $4.29

Quizplus · Accepted Answer

Predetermined overhead rate for cost centre A = Estimated overhead costs for cost centre A / Estimated direct labour costs for cost centre A
= $77,000 / $55,000
= $1.40 per dollar of direct labour cost

Predetermined overhead rate for cost centre B = Estimated overhead costs for cost centre B / Estimated machine hours for cost centre B
= $180,000 / 24,000 machine hours
= $7.50 per machine hour

Therefore, the correct answer is B.

Brumpy Ltd Uses a Predetermined Overhead Rate in Applying Overhead