Managerial Accounting

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Predetermined Overhead Rate for Catalytic Converters


A firm manufactures catalytic converters for sale to automobile manufacturers and other parts businesses. To manufacture the catalytic converters, the firm estimates it will use 700,000 direct labor hours and 580,000 machine hours. Direct labor hours represent a critical determinant for the number of conveyor systems that can be produced. Last year, the actual overhead costs were \$4,850,000. Those costs are not likely to change in the upcoming year. However, the company anticipates shutting down a product line segment. As a result of the line closure, the company will incur job displacement services costs in the amount of \$340,000.

What is the predetermined OH Rate?