Question

Exotic Engine Shop uses a job order cost system to determine the cost of performing engine repair work. Estimated costs and expenses for the coming period are as follows: Engine parts $380,000 Shop direct labor 1,872,000 Shop and repair equipment depreciation 62,500 Shop supervisor salaries 240,000 Shop property taxes 36,940 Shop supplies 10,000 Advertising expense 28,000 Administrative office salaries 150,000 Administrative office depreciation expense 8,000 Total costs and expenses $2,787,440 The average shop direct labor rate is $37.50 per hour. Determine the predetermined shop overhead rate per direct labor hour. $fill in the blank 1 per direct labor hour

Answer 1

$7 per direct labor hour

Step-by-step explanation:

Given the above information ,

Overhead cost = Shop and repair equipment and depreciation + Shop supervisor salaries + shop property taxes + shop supplies

Overhead cost = $62,500 + $240,000 + $36,940 + $10,000 = $349,440

Number of direct labor hours = 1,872,000/$37.5 = 49,920

Predetermined overhead rate = Overhead cost/Direct labor hours

Predetermined overhead rate

= $349,440/49,920

= $7 per direct labor hour