Estimated total overhead $1,250,000; estimated shoes 4,000,000. What is the predetermined overhead rate?

Rationale

$0.313

To calculate the predetermined overhead rate, divide the estimated total overhead by the estimated total units (in this case, shoes). Thus, $1,250,000 divided by 4,000,000 shoes equals $0.313 per shoe.

A ($0.31) CORRECT

This is the correct calculation based on the formula for predetermined overhead rate: estimated total overhead divided by estimated total units. The result is $1,250,000 / 4,000,000 = $0.313.

B ($0.33) YOUR ANSWER

This value does not correspond to the correct ratio of overhead to units. If we calculate the overhead rate using $1,250,000 divided by 4,000,000, we do not arrive at $0.329, indicating a miscalculation.

C ($0.34) YOUR ANSWER

Similar to option B, this figure is also incorrect as it does not reflect the proper division of total overhead by total units. The correct predetermined overhead rate remains at $0.313, thus making $0.343 an inaccurate choice.

D ($0.38) YOUR ANSWER

This choice fails to represent the accurate calculation of the predetermined overhead rate. The correct division of $1,250,000 by 4,000,000 yields a much lower overhead rate than $0.375, confirming this option is incorrect.

Conclusion

The predetermined overhead rate is a crucial metric in cost accounting, derived from dividing total estimated overhead by total estimated output units. In this scenario, the correct rate of $0.313 reflects the proper calculation, while the other choices represent incorrect interpretations of the overhead formula. Understanding this calculation is essential for accurate budgeting and cost management in production processes.

Estimated total overhead $1,250,000; estimated shoes 4,000,000. What is the predetermined overhead rate?

$0.313

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