Toosat, Inc. has estimated the following operating data for the current year: Di
ID: 2538079 • Letter: T
Question
Toosat, Inc. has estimated the following operating data for the current year:
Direct labor hours: 21000
Machine hours: 7000
Direct materials cost: $56000
Manufacturing overhead: $115000
Assume that Toosat, Inc. computes a predetermined overhead rate annually based on direct labor hours.
During January of the current year, Toosat, Inc. works on 2 products, and accumulated the following actual operating data by product. Note that these are now actual results, not estimates.
Actual manufacturing overhead for January is $9775.
Toosat, Inc. uses a predetermined overhead rate (POHR). It is computed based on estimates at the beginning of a year. This accomplishes the smoothing of uneven overhead costs and give Toosat, Inc. the ability to assign costs to products in a timely manner.
a. What is the predetermined overhead rate (per direct labor hour) that Toosat, Inc. will use in the current year? Round the rate to the nearest penny for your answer.
b. How much total overhead will Toosat, Inc. apply to Product 1 in January? (Hint: when a company applies (or charges) overhead to a product, it uses the POHR and the ACTUAL level of the cost driver for the product.)
Round your answer to the nearest dollar.
Explanation / Answer
a) Predetermine overhead rate = Estimated overhead/estimated labour hour
= 115000/21000
Predetermine overhead rate = 5.48 per labour hour
b) Overhead apply to product 1 = 422*5.48 = $2313