Question

Highland Industries makes custom yachts using a job cost accounting system. In anticipation of a busy year for 2019, Highland’s accountant estimated the following overhead costs for 2019: Machinery maintenance $181,350 Utilities $226,380 Supervision $191,000 Materials handling cost $67,000 Building occupancy costs $98,270 Indirect materials $31,650 In the past, Highland has used direct labor hours to allocate overhead to the various yacht building jobs and they anticipate using the same for 2019. Highland anticipates using a total of 72,000 direct labor hours in 2019. At the beginning of 2019, Highland had no yachts in process or finished but did have $202,000 in raw materials left over from 2018. During 2019, Highland began work on 3 yachts (A, B, C). They also purchased and paid for $2,355,000 in raw materials. The predetermined overhead rate using direct labor hours for 2019 would be:

Answer 1

predetermined overhead per direct labor hour: $11.02

Step-by-step explanation:

`(Cost\: Of \:Manufacturing \:Overhead)/(Cost \:Driver)= Overhead \:Rate`

To solve for overhead rate we determinate the expected cost and distribute them over a cost driver which is, in this case; direct labor hours

Expected overhead cost:

Machinery maintenance $ 181,350

Utilities $ 226,380

Supervision $ 191,000

Materials handling cost $ 67,000

Building occupancy costs $ 98,270

Indirect materials $ 31,650

Total overhead: $ 795,650

Total direct labor: 72,000

Overhead rate: 795,650 / 72,000 = 11.0206944= $11.02