To compute the predetermined overhead rate, we use the formula:

$\text{Predetermined Overhead Rate} = \frac{\text{Estimated Overhead}}{\text{Estimated Decorator Hours}}$

From the provided data:

• Estimated Overhead = $960,000
• Estimated Decorator Hours = 40,000

Now calculating:

$\text{Predetermined Overhead Rate} = \frac{960,000}{40,000} = 24 \, \text{per decorator hour}$

The predetermined overhead rate is $24 per decorator hour.

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Related Questions:

1. How does actual overhead affect job costing at the end of the year?
2. What happens if actual decorator hours differ significantly from estimated hours?
3. How would you compute the total applied overhead using the predetermined rate?
4. What is the impact of under-applied or over-applied overhead on financial statements?
5. How can a company refine its overhead estimation process?

Tip: Always validate estimated hours and overhead annually to improve job costing accuracy.