Use the following information from BSJ Industries to determine the predetermined overhead rate based on direct labor costs. (Round your final answer to 2 decimal places.) Direct labor hours 50,000
Average hourly pay rate $ 16.00
Manufacturing overhead $ 1,400,000

The predetermined overhead rate based on direct labor costs is $1.75 per dollar of direct labor cost.

Explanation:

Predetermine overhead rate is an overhead application rate that is used to allocate the estimated overheads to calculate the estimated cost to manufacture a product while budgeting and planning. The predetermined overhead rate is calculated using an allocation base e.g direct labor hours or machine hours etc.  

In the given question the predetermined overhead rate can be calculated as follow

First,  we need to determine the direct labor cost

Direct labor cost = Direct Labor hours x Average hourly pay rate

Where

Direct Labor hours = 50,000 hours

Average hourly pay rate = $16.00 per hour

Placing values in the formula

Direct labor cost = 50,000 hours x $16.00 per hour = $800,000.00

Now use the following formula to calculate the predetermined overhead rate

Predetermined Overhead rate = Manufacturing overheads / Direct Labor cost = $1,400,000 / $800,000 = $1.75 per dollar of direct labor cost

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