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A company uses direct labor costs as it allocation base. Management estimates the company will incur $150,000 of direct labor cost during the year and total overhead costs of $200,000. What is their predetermined overhead rate?

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Answer: $0.75

Explanation: predetermined overhead rate = estimated manufacturing overhead cost/total overhead cost

estimated manufacturing overhead cost (labor cost) = $ 150000

total overhead cost = $200000

⇒ predetermined overhead rate = 150000/200000 = $0.75

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