Question

Agassi Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K. In establishing the predetermined overhead rates for 2017, the following estimates were made for the year. Department D E K

Manufacturing overhead $1,197,000 $1,500,000 $720,000
Direct labor costs $1,496,250 $1,250,000 $450,000
Direct labor hours 100,000 125,000 40,000
Machine hours 400,000 500,000 120,000
During January, the job cost sheets showed the following costs and production data.
Department D E K
Direct materials used $140,000 $126,000 $78,000
Direct labor costs $120,000 $110,000 $37,500
Manufacturing overhead incurred $99,000 $124,000 $79,000
Direct labor hours 8,000 11,000 3,500
Machine hours 34,000 45,000 10,450
Compute the predetermined overhead rate for each department. (Round answers to 2 decimal places, e.g. 10.25.)

Answer 1

Results are below.

Step-by-step explanation:

To calculate the predetermined overhead rate, we need to use the following formula on each department:

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

Department D:

Predetermined manufacturing overhead rate= 1,197,000 / 1,496,250

Predetermined manufacturing overhead rate= $0.8 per direct labor dollar

Department E:

Predetermined manufacturing overhead rate= 1,500,000 / 125,000

Predetermined manufacturing overhead rate= $12 per direct labor hour

Department K:

Predetermined manufacturing overhead rate= 720,000 / 120,000

Predetermined manufacturing overhead rate= $6 per machine hour