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# Compute company's predetermined overhead rate

Estimated cost and operating data for three companies for the upcoming year follow:

Company X Company Y Company Z
Direct labor-hours 80,000 45,000 60,000
Machine-hours 30,000 70,000 21,000
Direct materials cost \$400,000 \$290,000 \$300,000
Manufacturing overhead cost \$536,000 \$315,000 \$480,000

Predetermined overhead rates are computed using the following allocation bases in the three companies:

Allocation Base
Company X Direct labor-hours
Company Y Machine-hours
Company Z Direct materials cost

1. Compute each company's predetermined overhead rate.

2. Assume that Company X works on three jobs during the upcoming year. Direct labor-hours recorded by job are: Job 418, 12,000 hours; Job 419, 36,000 hours; and Job 420, 30,000 hours. How much overhead will the company apply to Work in Process for the year? If actual overhead costs total \$530,000 for the year, will overhead be underapplied or overapplied? By how much?

#### Solution Summary

The expert computes a company's predetermined overhead rate. The allocation bases in three companies is examined.

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