Superior Services, Inc. is a consulting firm that offers optimal legal solutions. It allocates indirect costs using a single predetermined overhead allocation rate with direct labor hours as the allocation base. The estimated indirect costs for this year amount to $ 170,000. The company is expected to work 6,000 direct labor hours during the year. The direct labor rate is $ 250 per hour. Clients are billed at 130% of direct labor cost. Last month, Superior's consultants spent 175 hours on Xyme, Inc. What is the predetermined overhead allocation rate per direct labor hour? (Round your final answer to the nearest whole dollar.)

The correct answer is $28.

Explanation:

According to the scenario, the given data are as follows:

Estimated indirect cost = $170,000

Direct labor hours = 6,000 hours

Direct hour rate = $250

So, we can calculate the predetermined overhead allocation rate per direct labor hour by using following formula:

Predetermined Overhead allocation Rate per direct labor hour = Estimated Indirect cost / Total direct labor hour

= $170,000 / 6000 hours

= $28.33 per hour

= $28 per hour.

Hence, the predetermined overhead allocation rate per direct labor hour is $28.

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