Question

Exotic Engine Shop uses a job order cost system to determine the cost of performing engine...

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 $715,100
Shop direct labor 522,000
Shop and repair equipment depreciation 36,000
Shop supervisor salaries 100,100
Shop property taxes 18,200
Shop supplies 13,900
Advertising expense 14,300
Administrative office salaries 61,500
Administrative office depreciation expense 7,900
   Total costs and expenses $1,489,000

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.

Business   Accounting   
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Answer #1

Answer:

Shop Direct Labor Cost = $522,000

Shop Direct Labor Rate = $18

Shop Direct Labor Hours = Shop Direct Labor Cost / Shop Direct Labor Rate
Shop Direct Labor Hours = $522,000 / $18
Shop Direct Labor Hours = 29,000

Shop Overhead = Shop and repair equipment depreciation + Shop supervisor salaries + Shop property taxes + Shop supplies
Shop Overhead = $36,000 + $100,100 + $18,200 + $13,900
Shop Overhead = $168,200

Predetermined Overhead Rate per Direct Labor hour = Shop Overhead /Shop direct labor hours
Predetermined Overhead Rate per Direct Labor hour = $168,200 / 29,000
Predetermined Overhead Rate per Direct Labor hour = $5.8

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