Q19E-a - Horngren'S Financial And Managerial Accounting

Question

Selected cost data for Classic Print Co. are as follows:

Estimated manufacturing overhead cost for the year	$125,000
Estimated direct labor cost for the year	78,125
Actual manufacturing overhead cost for the year	116,000
Actual direct labor cost for the year	67,000

Requirements

1. Compute the predetermined overhead allocation rate per direct labor dollar.

Step-by-Step Solution

Answer

The predetermined overhead allocation rate per direct labor dollar is $1.60

Step 1: Labor cost

Labor cost is the total wages including the additional benefits, payroll, etc., paid to the employees of the company for providing services to the company.

Step 2: The predetermined overhead allocation rate per direct labor dollar.

$$\begin{gathered} \mathbf{Predetermined}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{allocation}\mathbf{ }\mathbf{rate}\mathbf{=}\frac{\mathbf{Estimated}\mathbf{ }\mathbf{manufacturing}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{cost}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{the}\mathbf{ }\mathbf{year}}{\mathbf{Estimated}\mathbf{ }\mathbf{direct}\mathbf{ }\mathbf{labor}\mathbf{ }\mathbf{cost}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{the}\mathbf{ }\mathbf{year}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{125}\mathbf{,}\mathbf{000}}{\mathbf{78}\mathbf{,}\mathbf{125}} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{.}\mathbf{60} \end{gathered}$$