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- 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
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