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The Collins Company uses predetermined overhead rates to apply manufacturing overhead to jobs
The Collins Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined overhead rate is based on _13 labour cost in Dept. A and machine hours in Dept. B. At the beginning of the year, the company made the following estimates:
Direct Labour cost Dept A R65 000 Dept B R42 000 Manufacturing overhead 91 000 48 000 Direct Labour hours 8 000 10 000 Machine hours 3 000 12 000
What predetermined overhead rates would be used in Dept A and Dept B, respectively?
Selected Answer: o 71% and R4.00 Answers: 71% and R4.00 co 140% and R4.00 140% and R4.80 71% and R4.80
Expert Solution
Computation of Predetermined Overhead Rates used in Department A and B:
Predetermined Overhead Rate for Department A = Manufacturing Overhead / Direct Labor Costs
= 91,000 / 65,000
= 1.4 or 140%
Predetermined Overhead Rate for Department B = Manufacturing Overhead / Machine Hours
= 48,000 / 12,000 hours
= R4 per machine hour
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