Sawyer Manufacturing Corporation:

Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 30,000 actual direct labor-hours and incurred $319,000 of actual manufacturing overhead cost. The Corporation had estimated that it would work 29,000 direct labor-hours during the year and incur $290,000 of manufacturing overhead cost. The Corporation’s manufacturing overhead cost for the year was:

  • $6.73
  • $9.90
  • $14.87
  • $8.64

Answer: $14.87

Rationale:

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $290,000 ÷ 29,000 direct labor-hours = $10 per direct labor-hour

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