Question

"Steele Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. Steele Corporation has provided the following estimated costs for next year: Direct materials $ 20,000 Direct labor $ 60,000 Sales commissions $ 80,000Salary of production supervisor $ 40,000Indirect materials $ 8,000 Advertising expense $ 16,000 Rent on factory equipment $ 20,000 Steele estimates that 10,000 direct labor-hours and 16,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be:A) $10.25 B)$4.25C) $9.00 D)$8.00

Answer 1

Answer:

B) $ 4.25

Explanation:

From the data provided in the question, we need to classify the items into manufacturing costs.

Salary of production supervisor                                        $ 40,000

Indirect materials                                                                $   8,000

Rent on factory equipment                                                $  20,000

Total manufacturing costs                                                  $ 68,000

Estimated Machine Hours                                                      16,000

Manufacturing Overhead - $ 68,000/ 16,000 hours         $   4.25 per machine hours                                        

The other items provided in the question, sales commission and advertising expenses are selling expenses and are not manufacturing costs.