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Factory overhead rates LO P3 At the beginning of the year, a company estimates the following manufacturing costs for the next period: direct labor, $488,000; direct materials, $212,000; and factory overhead, $132,000. Required: 1. Compute its predetermined overhead rate as a percent of direct labor. 2. Compute its overhead cost as a percent of direct materials.

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TomShelby

Answer:

1.- 25.205%

2.- 58.019%

Explanation:

The goal of the rate is to distribute the manufacturing overhead over a cost driver.

[tex]\frac{CostOf Manufacturing Overhead}{Cost Driver}= $Overhead Rate[/tex]

So the amount in the dividend remains the same, and the divisor will cahnge according to the driver we are asked for:

1.- Compute its predetermined overhead rate as a percent of direct labor.

[tex]\frac{132,000}{488,000}= 0.25205 = 25.205%[/tex]

2.- Compute its overhead cost as a percent of direct materials.

[tex]\frac{132,000}{212,000} = 0.58019 = 58.019%[/tex]

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