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Manufacturing overhead costs totaling $1,000,000 are expected for this coming year. The company also expects to...

Manufacturing overhead costs totaling $1,000,000 are expected for this coming year. The company also expects to use 20,000 in direct labor hours. Calculate the predetermined overhead rate and provide a one-sentence description of how the rate will be used in a job costing system.

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Answer #1

Expected Manufacturing overhead cost = $ 1000,000

Total expected direct labour hours = 20,000

Predetermined overhead rate =

Expected Manufacturing overhead cost / total expected direct labour hours

= $ 1000,000 / 20,000

= $ 50 per direct labour hour

In case of Job costing system, overhead will be charged on each job based. As the predetermined overhead rate is $ 50, so on each job the direct labour hours used will be multiplied by $ 50 to get the total overhead charged on that job.

So the predetermined overhead will be allocated to each job based on direct labour hours used.

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