Question

Predetermined Factory Overhead Rate

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		$1,159,000
Shop direct labor		846,000
Shop and repair equipment depreciation		79,500
Shop supervisor salaries		220,900
Shop property taxes		40,100
Shop supplies		30,800
Advertising expense		23,200
Administrative office salaries		99,700
Administrative office depreciation expense		12,700
	Total costs and expenses	$2,511,900

The average shop direct labor rate is $18.00 per hour.

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

Answer 1

Answer- The predetermined shop overhead rate per direct labor hour = $7.9 per direct labor hour.

Explanation- Predetermined shop overhead rate per direct labor hour =Estimated total factory overhead /Estimated activity base

= $371300/47000 direct labor hours

= $7.9 per labor hour

Where –Estimated activity base (Direct labor hours) = Shop direct labor/ Labor per hour

= $846000/$18.00 per hour

= 47000 direct labor hours

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

= $79500+$220900+$40100+$30800

= $371300