Question

Johansen Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for the next year:
Direct materials...................................$6,000
Direct labor.........................................$20,000
Rent on factory building......................$15,000
Sales salaries.....................................$25,000
Depreciation on factory equipment......$8,000
Indirect labor.......................................$12,000
Production supervisor's salary.............$15,000
Jameson estimates that 20,000 direct labor-hours will be worked during the year. The predetermined overhead rate per hour will be:
A) $2.50 per direct labor-hour
B) $2.79 per direct labor-hour
C) $3.00 per direct labor-hour
D) $4.00 per direct labor-hour

Answer 1

Answer:

Predetermined manufacturing overhead rate= $2.5 per direct labor hour

Explanation:

Giving the following information:

Jameson estimates that 20,000 direct labor-hours will be worked during the year.

Rent on factory building......................$15,000

Depreciation on factory equipment......$8,000

Indirect labor.......................................$12,000

Production supervisor's salary.............$15,000

First, we need to calculate the estimated overhead costs:

estimated overhead costs= Rent on factory building + Depreciation on factory equipment + Indirect labor + Production supervisor's salary

estimated overhead costs= 15,000 + 8,000 + 12,000 + 15,000

estimated overhead costs= $50,000

Now, we can determine the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 50,000 / 20,000

Predetermined manufacturing overhead rate= $2.5 per direct labor hour