Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay either a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost plus). For the upcoming year (year 2), Marine expects only two clients (client 1 and client 2). The work done for client 1 will all be done under fixed-price contracts while the work done for client 2 will all be done under cost-plus contracts.
Manufacturing overhead for year 2 is estimated to be $10 million. Other budgeted data for year 2 include:
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Client 1
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Client 2
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Machine-hours (thousands)
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2,000
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2,000
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Direct labor cost ($000)
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$
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2,500
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$
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7,500
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a. Compute the predetermined rate assuming that Marine Components uses machine-hours to apply overhead. (Round your answer to 2 decimal places.)
b. Compute the predetermined rate assuming that Marine Components uses direct labor cost to apply overhead.