The predetermined overhead rate for each activity base is:
a) Direct labor cost = $1 Rwf
b) Direct labor hour = 8.57 Rwf
c) Machine hours = 0.43Rwf.
The predetermined overhead rate is the overhead rate that is calculated based on some cost pools, which is then applied to units of production based on activity bases.
Some of the activity bases include direct labor hours or costs, and machine hours.
Using a predetermined overhead rate divides the estimated overhead costs by the units of the activity base.
Annual manufacturing costs = 600,000 Rw
Estimated annual operating activities bases:
Direct labor cost = 600,000 Rwf
Direct labor hours = 70,000
Machine hours = 1,400,000
The computation of the predetermined overhead rate for each activity base is as follows:
a) Direct labor cost = $1 Rwf (600,000 Rwf/600,000).
b) Direct labor hour = 8.57 Rwf (600,000 Rwf/70,000).
c) Machine hours = 0.43 (600,000 Rwf/1,400,000).
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