Question

Wheeler’s Bike Company manufactures custom racing bicycles. The company uses a job order cost system to determine the cost of each bike. Estimated costs and expenses for the coming year follow:

Bike parts	$	346,800
Factory machinery depreciation		58,000
Factory supervisor salaries		138,000
Factory direct labor		210,175
Factory supplies		37,400
Factory property tax		27,250
Advertising cost		20,500
Administrative salaries		54,500
Administrative-related depreciation		24,200
Total expected costs	$	916,825

Required:

1. Calculate the predetermined overhead rate per direct labor hour if the average direct labor rate is $12.01 per hour.

2. Determine the amount of applied overhead if 18,800 actual hours are worked in the upcoming year.

Answer 1

Factory machinery depreciation	58000
Factory supervisor salaries	138000
Factory supplies	37400
Factory property tax	27250
Total estimated manufacturing overhead	260650
Estimated direct labor hours = Estimated factory direct labor / Average direct labor rate = 210175 / 12.01	17500

Required 1 :
Predetermined overhead rate = Total estimated manufacturing overhead / Estimated direct labor hours = 260650 / 17500	14.89	per direct labor hour
Required 2 :
Amount of overhead applied = Actual direct labor hours worked * Predetermined overhead rate = 18800 * 14.89	279932