Marvel Company Uses a Predetermined Overhead Rate in Applying Overhead

question 147

Multiple Choice

Marvel Company uses a predetermined overhead rate in applying overhead to production orders on a labor-cost basis in Department A and on a machine-hours basis in Department B. At the beginning of the most recently completed year, the company made the following estimates:
$$\begin{array} { l r r } & \text { Dept. A } & \text { Dept. B } \\\text { Direct labor cost } & \$ 56,000 & \$ 33,000 \\\text { Factory overhead } & \$ 67,200 & \$ 45,000 \\\text { Direct labor-hours } & 8,000 & 9,000 \\\text { Machire-hours } & 4,000 & 15,000\end{array}$$
What predetermined overhead rate would be used in Department A and Department B, respectively?

• A) 83% and $5.
• B) 83% and $3.
• C) 120% and $3.
• D) 120% and $5.

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Definitions:

Normal Plant Capacity

The expected or planned level of operation for a manufacturing plant, considering normal working conditions and time periods.

Differential Analysis

The process of comparing the costs and benefits of alternative decisions, focusing on the differences between the options.

Fixed Costs

Expenses that do not change in the short term, regardless of the level of production or sales activities.

Differential Analysis

The process of analyzing and comparing alternative business decisions based on the differences in total costs and total revenues.