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    Predetermined Overhead Rate

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    Showers Company estimates the following overhead costs for the coming year:
    Equipment depreciation $150,000
    Equipment maintenance 50,000
    Supervisory salaries 20,000
    Factory rent 200,000
    Total $420,000

    Showers is also budgeting $600,000 in direct labor costs and 14,000 machine hours for the coming year.
    a. Calculate the predetermined overhead rate using direct labor costs as the
    allocation base.
    b. Calculate the predetermined overhead rate using machine hours as the allocation base.
    c. Which of the allocation bases is preferred? Why?

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    https://brainmass.com/business/business-math/calculations-predetermined-overhead-rate-121839

    Solution Preview

    Total overhead cost =$420000

    A. The predetermined overhead rate using direct labor costs as the allocation base = Total overhead cost/ Direct labor cost = 420000/600000=0.7 = 70% ...

    Solution Summary

    Solution shows calculations of the predetermined overhead rate using direct labor costs and machine hours as the allocation base.

    $2.19

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