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Calculate the Firm's Predetermined and Actual Overhead Rates

BUDGETED SALES REVENUE $205000
ACTUAL MANUFACTURING OVERHEAD $340000
BUDGETED MACHINE HOURS 10000
BUDGETED DIRECT LABOUR HOUR 20000
BUDGETED DIRECT LABOUR RATE $14
BEDGETED MANUFACTURING OVERHEAD $364000
ACTUAL MACHINE HOURS 11000
ACTUAL DIRECT LABOUR HOURS 18000
ACTUAL DIRECT LABOUR RATE $15

Required:
calculate the firm's predetermined and actual overhead rates for the year using each of the following cost drivers:
-machines hours
-direct labour hours
-direct labour cost

Would you recommend using an actual overhead rate or a predetermined overhead rate for noose supply company? Explain please.

Solution Preview

Solution is provided in a separate Excel file attached. It contains following parts.

1. Cost driver and Formula for predetermined overhead Rate and calculation of predetermined Rate.

2. Cost driver and Formula for Actual overhead Rate and calculation of Actual Rate.

3. Calculation of Budgeted and Actual direct wages

Notes:
We would recommend using a predetermined overhead rate for noose supply company For the following reasons.

1. Overhead costs are assigned to the production by means of predetermined overhead rate.
When absorption is based on actual overhead ...

Solution Summary

The solution assists in calculating the firm's predetermined and actual overhead rates.

$2.19