Problem: Compton Company uses a predetermined overhead rate in applying overhead to production orders on a labor cost basis in Department A and on a machine hours basis in Department B. At the beginning of the most recently completed year, the company made the following estimates:
Dept. A Dept. B
Direct labor cost $56,000 $33,000
Factory overhead $67,200 $45,000
Direct labor hours 8,000 9,000
Machine hours 4,000 15,000
What predetermined overhead rate would be used in Department A and Department B, respectively?
A) 83% and $5 C) 120% and $3
B) 83% and $3 D) 83% and $3