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Calculate the predetermined overhead rate

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Reference no: EM132783401

Question - Globe steel Furniture Ltd (GSFL) manufactures three types of steel tables Deluxe, Prince and King. The company has been experiencing steady declines in its profitability in recent times. GSFL Ltd currently uses conventional product costing system whereby overhead costs are allocated on the basis of direct labour hours. The direct labour hours are estimated to be 146,000 hours. The Direct material and Direct Labour costs per unit for the three products are as below:

Deluxe Prince King

Direct Material $360 $500 $600

Direct Labour $90 $120 $150

The management suspects that conventional product costing system used may have contributed to the profit declines. Therefore, the CFO implemented an alternative system namely, activity-based product costing system. Given below are each activity, its cost and its related activity driver.

Activity Cost Activity Driver

Material handling $96,000 Weight of raw material Machining $1,072,000

Machine hours Assembly $292,000

Direct Labour hours Total manufacturing cost $1,460,000

The following information pertains to each product line of GSFL Ltd for the year:

Deluxe Prince King

Units to be produced 10,000 4,000 20,000

Machine hours per unit 6210Weight (kg) of raw material per unit 130.5 Labour hours per unit 3 4 5

Required - Calculate the predetermined overhead rate based on Direct labour hours?

Reference no: EM132783401

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