Computer World, Inc. manufactures computer parts and keyboards. The annual production and sales of computer parts is 1,000 units, while 1,200 keyboards are produced and sold. The company has traditionally used direct-labor hours to allocate its overhead to products. Computer parts require 3 direct labor hours per unit, while keyboards require 2.5 direct labor hours per unit. The total estimated overhead for the period is $114,000. The company is looking at the possibility of changing to an activity-based costing system for its products. What is the predetermined overhead allocation rate using the traditional costing system?

Estimated manufacturing overhead rate= $19 per direct labor hour

Explanation:

Giving the following information:

Computer parts= 1,000 units

Keyboards= 1,200

Computer parts require 3 direct labor hours per unit

Keyboards require 2.5 direct labor hours per unit.

The total estimated overhead for the period is $114,000.

The allocation base is direct labor hours. First, we need to calculate the total amount of direct labor hours.

Direct labor hours= total units per product*unitary direct labor hour required

Direct labor hour= 1,000*3 + 1,200*2.5= 6,000 direct labor hours

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 114,000/ 6,000= $19 per direct labor hour

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