LO 6.1A company estimated 100,000 direct labor hours and $800,000 in overhead. The actual overhead was $805,100, and there were 99,900 direct labor hours. What is the predetermined overhead rate, and how much was applied during the year?
LO 6.1A company estimated 100,000 direct labor hours and $800,000 in overhead. The actual overhead was $805,100, and there were 99,900 direct labor hours. What is the predetermined overhead rate, and how much was applied during the year?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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![### Educational Content on Overhead Cost Calculation
#### Predetermined Overhead Rate
In cost accounting, predicting the overhead costs is crucial for effective budgeting and manufacturing planning. Overhead costs include all the indirect manufacturing costs such as utilities, maintenance, and salaries for supervisors.
**Example Problem: Calculating Predetermined Overhead Rate and Applied Overhead**
**Scenario:**
A company estimated:
- 100,000 direct labor hours
- $800,000 in overhead costs
The actual overhead cost turned out to be $805,100, with 99,900 actual direct labor hours.
**Question:**
What is the predetermined overhead rate, and how much overhead was applied during the year?
**Calculation:**
1. **Predetermined Overhead Rate:**
- This rate is calculated before the period begins and is used to assign overhead costs to products or job orders.
- The formula for the predetermined overhead rate is:
\[
\text{Predetermined Overhead Rate} = \frac{\text{Estimated Overhead Costs}}{\text{Estimated Direct Labor Hours}}
\]
- Applying the given values:
\[
\text{Predetermined Overhead Rate} = \frac{\$800,000}{100,000 \text{ direct labor hours}} = \$8 \text{ per direct labor hour}
\]
2. **Applied Overhead:**
- This is the overhead cost that is applied to the job or production based on the actual labor hours worked.
- The formula for applied overhead is:
\[
\text{Applied Overhead} = \text{Predetermined Overhead Rate} \times \text{Actual Direct Labor Hours}
\]
- Using the predetermined rate and actual labor hours:
\[
\text{Applied Overhead} = \$8 \times 99,900 \text{ direct labor hours} = \$799,200
\]
**Conclusion:**
- The predetermined overhead rate is $8 per direct labor hour.
- The total applied overhead for the actual direct labor hours was $799,200.
Understanding these calculations helps ensure that overhead costs are allocated correctly, providing accurate cost information and aiding in budget control and decision-making.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcdc7cca2-f119-4e9e-8509-2158f6d90181%2Fe83d6ed9-3174-4a82-b17c-d2c1a4898cce%2Fcw8upeq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Educational Content on Overhead Cost Calculation
#### Predetermined Overhead Rate
In cost accounting, predicting the overhead costs is crucial for effective budgeting and manufacturing planning. Overhead costs include all the indirect manufacturing costs such as utilities, maintenance, and salaries for supervisors.
**Example Problem: Calculating Predetermined Overhead Rate and Applied Overhead**
**Scenario:**
A company estimated:
- 100,000 direct labor hours
- $800,000 in overhead costs
The actual overhead cost turned out to be $805,100, with 99,900 actual direct labor hours.
**Question:**
What is the predetermined overhead rate, and how much overhead was applied during the year?
**Calculation:**
1. **Predetermined Overhead Rate:**
- This rate is calculated before the period begins and is used to assign overhead costs to products or job orders.
- The formula for the predetermined overhead rate is:
\[
\text{Predetermined Overhead Rate} = \frac{\text{Estimated Overhead Costs}}{\text{Estimated Direct Labor Hours}}
\]
- Applying the given values:
\[
\text{Predetermined Overhead Rate} = \frac{\$800,000}{100,000 \text{ direct labor hours}} = \$8 \text{ per direct labor hour}
\]
2. **Applied Overhead:**
- This is the overhead cost that is applied to the job or production based on the actual labor hours worked.
- The formula for applied overhead is:
\[
\text{Applied Overhead} = \text{Predetermined Overhead Rate} \times \text{Actual Direct Labor Hours}
\]
- Using the predetermined rate and actual labor hours:
\[
\text{Applied Overhead} = \$8 \times 99,900 \text{ direct labor hours} = \$799,200
\]
**Conclusion:**
- The predetermined overhead rate is $8 per direct labor hour.
- The total applied overhead for the actual direct labor hours was $799,200.
Understanding these calculations helps ensure that overhead costs are allocated correctly, providing accurate cost information and aiding in budget control and decision-making.
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