Question

Gerstein Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $90,000, variable manufacturing overhead of $3.70 per direct labor-hour, and 50,000 direct labor-hours. The company recently completed Job M800 which required 150 direct labor-hours.
The predetermined overhead rate is closest to:

a. $1.80 per direct labor-hour
b. $5.50 per direct labor-hour
c. $9.20 per direct labor-hour
d. $3.70 per direct labor-hour

Answer 1

Answer:

b. $5.50 per direct labor-hour

Explanation:

The computation of the predetermined overhead rate is shown below:

= (Total estimated manufacturing overhead) ÷ (estimated direct labor-hours)

where,

Total estimated manufacturing overhead = Total fixed manufacturing overhead cost + variable manufacturing overhead per direct labor hour × direct labor hours

= $90,000 + $3.70 × 50,000 direct labor hours

= $90,000 + $185,000

= $275,000

And, the direct labor hour is 50,000

So, the predetermined overhead rate is

= $275,000 ÷ 50,000 direct labor hours

= $5.50 per direct labor-hour