Predetermined Factory Overhead Rate Street Runner Engine Shop uses a job order c

Question

Predetermined Factory Overhead Rate Street Runner Engine Shop uses a job order cost system to determine the cost of performing engine repair work. Estimated costs and expenses for the coming period are as follows: Engine parts $740,000 Shop direct labor 500,000 Shop and repair equipment depreciation 40,000 Shop supervisor salaries 133,000 Shop property taxes 22,000 Shop supplies 10,000 Advertising expense 20,000 Administrative office salaries 71,400 Administrative office depreciation expense 6,000 Total costs and expenses $1,542,400 The average shop direct labor rate is $20 per hour. Determine the predetermined shop overhead rate per direct labor hour. Round to the nearest cent. $ per direct labor hour

Explanation / Answer

Cost of performing engine repair work

Shop and repair equipment depreciation    $ 40000

Shop supervisor salaries                             $ 133000

Shop property taxes                                   $ 22000

Shop supplies                                             $ 10000

TOTAL                                                      $ 205000

Predetermined shop overhead rate per direct labor hour = $ 8.20

The estimated activity base is determined by dividing the shop direct labor cost

by the direct labor rate, as follows:

Direct Labour                         $ 500000

Direct Labour rate                  $ 20 per hour

Direct Labour Hours               25,000 hours

Predetermined shop overhead rate per direct labor hour

=$ 205000 / 25000 Hours

= $ 8.20 / Direct Labour hours

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