Cranston Company estimates the following overhead costs for the coming year: Cra

Question

Cranston Company estimates the following overhead costs for the coming year:

Cranston is also budgeting $600,000 in direct labor costs and 15,000 machine hours for the coming year.

Required:

a. Calculate the predetermined overhead rate using direct labor costs as the allocation base. Round your answer to the nearest cent.
$_______________per direct labor dollar

b. Calculate the predetermined overhead rate using machine hours as the allocation base.
$______________ per machine hour

Equipment depreciation $160,000 Equipment maintenance 60,000 Supervisory salaries 40,000 Factory rent 100,000 Total $360,000

Explanation / Answer

a) oVerhead rate = Estimated overhead /estimated direct labor cost

                     = 360,000 / 600,000

                       = $ .6 per direct labor dollar

b) Overhead rate = 360,000 / 15000

                     = $ 24 per machine hour

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