The controller for Tender Bird Poultry, Inc. estimates that the company's fixed overhead is $150,000 per year. She also has determined that the variable overhead is approximately $.15 per chicken raised and sold. Since the firm has a single product, overhead is applied on the basis of output u nits, chickens, raised and sold.
1. Calculate the predetermined overhead rate under each of the following output predictions: 100,000 chickens, 200,000 chickens, and 300,000 chickens.
2. Does the predetermined overhead rate change in proportion to the change in predicted production?
1. Predetermined overhead rate = (Fixed overhead + variable overhead)/ number of units produced.
a) 100,000 chickens,
This solution provides calculations for the predetermined overhead rate for each output level of chickens and explains why predetermined overhead rate doesn't change directly in proportion to the change in predicted production.