Assume the following costs in 2019: Estimated manufacturing overhead $234,000 Estimated direct labor costs $260,000 Actual overhead costs $280,000 Actual direct labor costs $295,000 What is the predeterminedoverhead rate based on direct labor costs?

a. 0.90
b. 1.11
c. 0.88
d.1.25

the predetermined overhead rate based on direct labor costs is a. 0.90

Explanation:

Predetermined overhead rate is used to allocate overheads (indirect costs) to products and departments.

Predetermined overhead rate = Budgeted Overheads / Budgeted Activity

Note Predetermined overhead rate is based on direct labor costs

Predetermined overhead rate = Budgeted Overheads / Budgeted Activity

                                                  = $234,000/ $260,000

                                                  = $0.90 per direct labor cost

a) 90% of labour cost  i.e 0.9

Explanation:

The per-determined overhead rate based on labour cost would be determined using the formula below

POAR = (Estimated overhead/Estimated labour cost) × 100

POAR = ($234,000/$260,000) × 100

         = 90% of labour cost

It implies that overheads would  be charged  to plroduct by multiplying 90%  by the product labour cost

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