Question
<p>Here are 2 hypothetical examples of manufacturing companies:<br />1. Williams Watches builds fine watches by hand sell them to jewelery company. The workers are highly skilled in the art of building watches.<br />2. Collins Computers builds using robotic manufacturing system with only minor interventions by humans.<br />Questions:<br />a. How is predetermined overhead rate calculated?<br />b. What denominator would be appropriate for each company in the POR calculation and why?</p>
Explanation / Answer
William Watches is a Labor Intensive Industry. Hence , for Caluclating Predetermined Overhead Rate , Labor Hours would be an appropriate denominator. Colin Computers is more Machine intensive in nature. Hence, in this case, Machine hours would be an appropriate denominator.