Question

Jonathan mfg. adopted a job?costing system. for the current year, budgeted cost driver activity levels for direct labor hours and direct labor costs were 20,000 and $100,000, respectively. in addition, budgeted variable and fixed factory overhead were $50,000 and $25,000, respectively. actual costs and hours for the year were as follows: direct labor hours 21,000 direct labor costs $110,000 machine hours 35,000 for a particular job, 1,500 direct labor hours were used. using direct labor hours as the cost driver, what amount of overhead should be applied to this job?

Answer 1

A pre-determined overhead rate is the rate used to apply manufacturing overhead to work-in-process inventory. The pre-determined overhead rate is calculated before the period begins. The first step is to estimate the amount of the activity base that will be required to support operations in the upcoming period. The second step is to estimate the total manufacturing cost at that level of activity. The third step is to compute the predetermined overhead rate by dividing the estimated total manufacturing overhead costs by the estimated total amount of cost driver or activity base. Common activity bases used in the calculation include direct labor costs, direct labor hours, or machine hours.

So
Predetermined oH rate is
(50,000+25,000)÷20,000=3.75

1,500 direct labor hours were used so
The amount of overhead should be applied to this job is
3.75×1,500=5,625

Good luck!