Determine the predetermined overhead rate

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Reference no: EM1311199

Determine the pre determined overhead rate from the given data.

Erte, Inc., manufactures two models of high pressure steam valves, the XR7 model and the ZD5 model. Data regarding the two products follow:

Products	Direct labor-hours	Annual production	Total Direct labor-hours
XR7	0.2 DLHs per unit	20,000 units	4,000 DLHs
ZD5	0.4 DLHs per unit	40,000 units	16,000 DLHs
			20,000 DLHs

Additional information about the company follows:

a. Product XR7 requires $35 in direct materials per unit, and product ZD5 requires $25.
b. The direct labor rate is $20 per hour.
c. The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products. Manufacturing overhead totals $1,480,000 per year.
d. Product XR7 is more complex to manufacture than product ZD5 and requires the use of a special milling machine.
e. Because of the special work required in (d) above, the company is considering the use of activity-based costing to apply overhead cost to products. Three activity cost pools have been identified and the first-stage allocations have been completed. Data concerning these activity cost pools appear below:

Assume that the company continues to use direct labor-hours as the bas for applying overhead cost to products.

Compute the predetermined overhead rate.

Reference no: EM1311199

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