1. The revised predetermined overhead rate is determined as follows:
Original estimated total manufacturing overhead... $3,402,000
Plus: Lease cost of the new machine ... 348,000
Plus: Cost of new technician/programmer ... 50,000
Estimated total manufacturing overhead... $3,800,000
Original estimated total direct labor-hours... 63,000
Less: Estimated reduction in direct labor-hours ... 6,000
Estimated total direct labor-hours... 57,000
Estimated total manufacturing overhead
Predetetermined = overhead rate Estimated total amount of the allocation base
$3,800,000
= 57,000 DLHs
= $66.67 per DLH
The revised predetermined overhead rate is higher than the original rate
because the automated milling machine will increase the overhead for
the year (the numerator in the rate) and will decrease the direct labor-
hours (the denominator in the rate). This double-whammy effect in-
creases the predetermined overhead rate.
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