The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs.The predetermined overhead rate is based on labor cost in Dept.A and on machine-hours in Dept.B.At the beginning of the year, the Corporation made the following estimates: What predetermined overhead rates would be used in Dept.A and Dept.B, respectively?

A) 67% and $3.00
B) 150% and $5.00
C) 150% and $3.00
D) 67% and $5.00

Question

The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs.The predetermined overhead rate is based on labor cost in Dept.A and on machine-hours in Dept.B.At the beginning of the year, the Corporation made the following estimates:

What predetermined overhead rates would be used in Dept.A and Dept.B, respectively?

A) 67% and $3.00
B) 150% and $5.00
C) 150% and $3.00
D) 67% and $5.00

Joshua McVicker · Accepted Answer

Final Answer : C, Explanation :  The predetermined overhead rate for Dept. A is calculated by dividing the estimated total manufacturing overhead cost for Dept. A by the estimated total labor cost for Dept. A.$840,000/$560,000 = 150%The predetermined overhead rate for Dept. B is calculated by dividing the estimated total manufacturing overhead cost for Dept. B by the estimated total machine hours for Dept. B.$480,000/160,000 = $3.00Therefore, the correct answer is C. Dept.APredetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation basePredetermined overhead rate = $90,000 ÷ $60,000 = 150% of direct labor costDept.BPredetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation basePredetermined overhead rate = $45,000 ÷ 15,000 machine-hours = $3.00 per machine-hour

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