Question

1. TATA company has established the following budget fot 1999:
Assembling welding
Factory overhead 225000 175000
Direct labor cost 375000 300000
Direct labor hours 37500 25000
Machine hours 37500 13000
TATA company uses predetermined rates to apply factory overhead.these rates are based on machine hours is Assembling and on the direct labor cost in welding .
REQUIRED: compute the predetermined factor overhead rate for each department ?

Answer 1

To compute the predetermined factory overhead rate for each department, we will use the following formulas:

Predetermined Overhead Rate = Budgeted Factory Overhead Cost / Budgeted Activity level

For Assembling department:
Predetermined Overhead Rate = 225,000 / 37,500 = $6 per machine hour

For Welding department:
Predetermined Overhead Rate = 175,000 / 300,000 = $0.5833 per direct labor cost

Therefore, the predetermined factory overhead rates for the Assembling and Welding departments are $6 per machine hour and $0.5833 per direct labor cost, respectively.