Question

Turbo Shop uses job order costing to determine the cost of performing engine repair work. Estimated costs and expenses for the coming period are as follows:

Line Item Description Amount
Engine parts $400,000
Shop direct labor 1,992,000
Shop and repair equipment depreciation 64,220
Shop supervisor salaries 210,000
Shop property taxes 57,390
Shop supplies 14,500
Advertising expense 32,000
Administrative office salaries 230,000
Administrative office depreciation expense 12,000
Total costs and expenses $3,012,110
The average shop direct labor rate is $40.00 per hour.
Determine the predetermined shop overhead rate per direct labor hour. Round the answer to nearest whole cent.
$ ______ per direct labor hour

Answer 1

The predetermined shop overhead rate per direct labor hour is $60.42.

Step-by-step explanation:

The predetermined shop overhead rate per direct labor hour can be calculated by dividing the estimated shop overhead costs by the estimated direct labor hours.

In this case, the estimated shop overhead costs are $3,012,110 and the estimated direct labor hours are calculated by dividing the total shop direct labor costs of $1,992,000 by the average shop direct labor rate of $40.00 per hour, which equals 49,800 direct labor hours.

So, the predetermined shop overhead rate per direct labor hour would be $3,012,110 / 49,800 = $60.42 per direct labor hour. Rounded to the nearest whole cent, the answer is $60.42.

Answer 2

The predetermined shop overhead rate per direct labor hour for Turbo Shop is found to be $47.21, calculated by dividing the accumulated overhead costs by the estimated labor hours.

Step-by-step explanation:

The predetermined overhead rate is calculated by dividing the total estimated overhead costs by the total estimated labor hours. For Turbo Shop, the overhead costs include shop direct labor, shop and repair equipment depreciation, shop supervisor salaries, shop property taxes, shop supplies, and administrative office depreciation expense, which sum up to $1,992,000 + $64,220 + $210,000 + $57,390 + $14,500 + $12,000 = $2,350,110. The total direct labor hours can be found by dividing the direct labor cost by the hourly rate, which is $1,992,000 / $40/hour = 49,800 hours. Therefore, the predetermined overhead rate is $2,350,110 / 49,800 hours = $47.21 per labor hour (rounded to the nearest whole cent).