Question

Hi I have a question I don't understand this problem

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Predetermined Factory Overhead Rate

Spring Street 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		$875,000
Shop direct labor		660,000
Shop and repair equipment depreciation		44,500
Shop supervisor salaries		138,000
Shop property taxes		27,500
Shop supplies		10,000
Advertising expense		22,100
Administrative office salaries		73,500
Administrative office depreciation expense		8,600
	Total costs and expenses	$1,859,200

The average shop direct labor rate is $30 per hour.

Determine the predetermined shop overhead rate per direct labor hour. Round to the nearest cent.
$ per direct labor hour

Answer 1

• Note: Predetermined Overhead rate is calculated by dividing Total Overhead with Direct Labor Hour.
• In the question, Total expenses include both Direct labour cost and other overheads.
• Labor Rate is given as $30 per hour.
• Shop Direct labor is $660000
• Hence, in order to first calculate Total Direct Labor Hours, direct labor cost is divided by labor Rate

= 660000 / 30 = 22000 direct labor hours worked.

• Total cost and expenses = $1859200
• Shop direct labor = $660000
• Hence, Overheads = 1859200 – 660000 = $1,199,200
• Predetermined Overhead rate = 1199200 / 22000 direct labor hours = $54.51 per direct labor hour.