Cosi Company uses a job order costing system and allocates its overhead on the basis of direct labor costs.Cosi expects to incur $800,000 of overhead during the next period,and expects to use 50,000 labor hours at a cost of $10.00 per hour.What is Cosi Company's predetermined overhead rate?
A)6.25%.
B)62.5%.
C)160%.
D)1600%.
E)67%.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated overhead costs by the estimated direct labor costs. Estimated overhead costs are $800,000. Estimated direct labor costs are 50,000 hours * $10/hour = $500,000. Therefore, the predetermined overhead rate is $800,000 / $500,000 = 1.6 or 160%.

Cosi Company Uses a Job Order Costing System and Allocates