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9 October, 14:59

29) 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

Direct labor

Rent on factory building

Sales salaries

Depreciation on factory equipment

Indirect labor

Production supervisor's salary



6,000

20,000

15,000

25,000

8,000

12,000

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

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Answers (1)
  1. 9 October, 15:59
    0
    The correct Answer is predetermined overhead rate = $2.50 per direct labor hour.

    Explanation:

    Overhead is those costs required to run a business, but which cannot be directly attributed to any specific, for example, rent, factory overheads, depreciation, indirect labor and production supervisor's salary.

    Total manufacturing overheads = Rent of factory building + Depreciation on factory equipment + Indirect labor + Production supervisor's salary

    Total manufacturing overheads = $15,000 + $8,000 + $12,000 + $15,000

    Total manufacturing overheads = $50,000

    Total Direct labor hours in the year = 20,000

    Predetermined Overhead Rate per labor hour = $50,000/20,000

    Predetermined Overhead Rate per labor hour = $2.50 per direct labor hour

    Note:

    Sales salary is a selling expense and not a product cost hence it will not be included for calculating predetermined overhead rate.

    Direct material and labor are direct expenses, they are product cost but not a part of Overhead cost.
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