Question

Kirpalani Stores manufactures customized household furnishings. The company uses a perpetual inventory system and has a highly labour-intensive production process, so it assigns manufacturing overhead based on direct labour cost. Kirpalani expects to incur $2,205,000 of manufacturing overhead costs and estimated direct labour costs of $3,150,000 during 2019. At the end of December 2018, Kirpalani reported work in process inventory (Job 551) of $93,000 The following events occurred during January 2019.

i) Purchased materials on account, $392,000.
ii) Incurred manufacturing wages of $400,000
iii) Requisitioned direct materials and used direct labour in manufacturing. Direct Materials Direct Labour Job 551 Job 552 Job 553 Job 554 $70,200 97,500 105,300 117,000 $61,200 115,600 78,200 85,000
iv) Issued indirect materials to production, $30,000.
v) Charged indirect manufacturing wages to production, $60,000.
vi) Depreciation of production machinery, $85,000
vii) Other manufacturing overhead costs incurred on units 551 to 554 amounted to $49,000.
viii)Allocated overheads to jobs at the predetermined rate
ix) Units completed: 551, 552 & 554.
x) Sold units 551 & 554 (billed customers at a margin of 33⅓% on sales)

Compute Kirpalani’s predetermined manufacturing overhead rate for 2019.

Answer 1

The predetermined manufacturing overhead rate for Kirpalani's Stores in 2019 is 70%.

Step-by-step explanation:

To calculate Kirpalani's predetermined manufacturing overhead rate, we need to divide the estimated manufacturing overhead costs by the estimated direct labor costs. In this case, the manufacturing overhead costs are $2,205,000 and the estimated direct labor costs are $3,150,000. Therefore, the predetermined manufacturing overhead rate for 2019 is:

Predetermined Manufacturing Overhead Rate = Manufacturing Overhead Costs / Direct Labor Costs

Predetermined Manufacturing Overhead Rate = $2,205,000 / $3,150,000

Predetermined Manufacturing Overhead Rate = 0.7 or 70%