Fortify, Inc. uses a predetermined manufacturing overhead rate based on direct labor hours to apply its indirect product costs to jobs. The following information has been collected for the previous year:
Direct materials | $ | 162,000 | ||
Direct labor | 212,000 | |||
Sales commissions | 112,000 | |||
Indirect labor | 62,000 | |||
Rent on office equipment | 37,000 | |||
Depreciation — factory building | 87,000 | |||
Utilities — factory | 221,000 | |||
Fortify used 37,000 direct labor hours and 62,000 machine hours during the previous year. What is the predetermined overhead rate per direct labor hour?
Answer :- Calculation of Predetermined overhead rate per direct labor hour :-
Predetermined overhead rate = Manufacturing overhead cost/ Total direct labor hours
Predetermined overhead rate = (Indirect labor + Depreciation-Factory building + Utilities-Factory) / Total direct labor hours
Predetermined overhead rate = ($62,000+$87,000+$221,000)/ 37,000
Predetermined overhead rate = $370,000 / 37,000
Predetermined overhead rate = $10 per direct labor hour
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