Chicago Corporation uses a job order costing system. Thus, management must establish a predetermined overhead rate for applying manufacturing overhead. Over a period of three years, the following data are 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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2010 2011 2012 Direct labor hours Machine hours Direct materials costs 45,000 90,000 53,000 75,000 $450,000 S300,000 $410,000 68,000 55,000 Total budgeted manufacturing overhead $90,000 $75,000 $55,000