Question

Gerstein Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $90,000, variable manufacturing overhead of $3.70 per direct labor-hour, and 50,000 direct labor-hours. The company recently completed Job M800 which required 150 direct labor-hours. The predetermined overhead rate is closest to:

Answer 1

The predetermined overhead rate is $5.5 per hour

Step-by-step explanation:

The formula to compute the predetermined overhead rate is shown below

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated direct labor-hours)

where,

Total estimated manufacturing overhead = Fixed manufacturing overhead + variable manufacturing overhead

= $90,000 + $3.70 × 50,000 direct labor hours

= $90,000 + $185,000

= $275,000

And, the direct labor hour is 50,000

Now put these values to the above formula

So, the value would equal to

= $275,000 ÷ 50,000 direct labor hours

= $5.5 per hour