Predetermined Manufacturing Overhead Rates Chicago Corporation uses a job order costing system. Thus, management must establish a predetermined overhead rate for applying manufacturing overhead. During the past three years, the following data have been accumulated:

1. What would the predetermined overhead rate be for each of the three years, if based on

(a) direct labor hours,

(b) machine hours, and

(c) direct materials costs?
2. Interpretive Question: Which allocation basis would you recommend be used in the future for applying manufacturing overhead? Why?

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Direct labor hours Machine hours Direct materials costs Total budgeted manufacturing overhead 2007 2008 2009 45,000 53,000 68,000 90,000 75,000 55,000 $450,000 $300,000 $410,000 $90,000 $75,000 $55,000