Austin Company uses a job order cost accounting system. At the beginning of the year, the company's executives estimated that direct labor would be $2,000,000 (200,000 hours at $10/hour) and that factory overhead would be $1,500,000 for the current period. At the end of the year, the records show that there had been 180,000 hours of direct labor and $1,200,000 of actual overhead costs. Using direct labor hours as a base, what was the predetermined overhead allocation rate

$7.50 per direct labor hour

Explanation:

Calculation for the predetermined overhead allocation rate

Using this formula

Predetermined overhead allocation rate = Factory overhead/Direct labor hours

Let plug in the formula

Predetermined overhead allocation rate = $1,500,000/200,000 hours

Predetermined overhead allocation rate = $7.50 per direct labor hour

Therefore the predetermined overhead allocation rate is $7.50 per direct labor hour

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