Question

Predetermined Factory Overhead Rate Novus 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 $1,257,500 Shop direct labor 550,000 Shop and repair equipment depreciation 91,000 Shop supervisor salaries 250,000 Shop property taxs 40,000 Shop supplies 15,000 Advertising expense 75,000 Administrative office salaries 175,000 Administrative office depreciation expense 12,500 Total costs and expenses $2,466,000 The average shop direct labor rate is $25 per hour. Determine the predetermined shop overhead rate per direct labor hour. $fill in the blank 1 per direct labor hour

Answer 1

Predetermined manufacturing overhead rate= $18 per direct labor hour

Step-by-step explanation:

First, we need to calculate the estimated overhead cost for the period:

Estimated overhead cost= Shop and repair equipment depreciation + Shop supervisor salaries + Shop property taxes + Shop supplies

Estimated overhead cost= 91,000 + 250,000 + 40,000 + 15,000

Estimated overhead cost= $396,000

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 396,000 / (550,000/25)

Predetermined manufacturing overhead rate= 396,000 / 22,000

Predetermined manufacturing overhead rate= $18 per direct labor hour