Predetermined Overhead Rate
Showers Company estimates the following overhead costs for
the coming year:
Equipment depreciation $150,000
Equipment maintenance 50,000
Supervisory salaries 20,000
Factory rent 200,000
Total $420,000
Showers is also budgeting $600,000 in direct labor costs and
14,000 machine hours for the coming year.
a. Calculate the predetermined overhead rate using direct
labor costs as the
allocation base.
b. Calculate the predetermined overhead rate using machine
hours as the allocation base.
c. Which of
the allocation bases is preferred? Why?
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