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    Predetermined Overhead Rates - Full Cost and Selling Price

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    Compute a departments predetermined over head rate using traditional costing and use it to determine the full cost and selling price for a regular meal and a special meal

    Raw materials $875,000
    Direct Labor $1,145,000
    Overhead $1,533,000

    Dept expected to make 300,000 regular meals and 50,000 special meals

    Regular Special
    Direct Material $2.25 $4.00
    Direct Labor 3.20 3.70

    Cost Driver Budgeted Activity Budgeted cost
    Purchasing Purchase Orders 620 527,000
    Mat. hand Set ups 36,000 720,000
    Quality control Batches 13,000 195,000
    Packaging Packaging hours 14,000 91,000

    Cost Driver Unit of Activity Regular Special
    Budgeted Meals meals 300,000 50,000
    Batch size meals in a batch 100 5
    Setups per batch 2 3
    Purchase Order meals in a PO 2500 100
    Packaging hours per 100 meals 4 4

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    Solution Preview

    Computation of predetermined overhead rate:

    I have taken Direct Labor as the base for determining the peredetermined overhead rate
    Thus the predetermined overhead rate = Overhead/Direct Labor

    =1533000/1145000
    1.34 times

    Computation of cost ...

    Solution Summary

    Compute a departments predetermined over head rate using traditional costing and use it to determine the full cost and selling price for a regular meal and a special meal...

    $2.19

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