Spring Street Engine Shop uses a job order cost system to determine the cost of

Question

Spring Street 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:

The average shop direct labor rate is $25 per hour.

Determine the predetermined shop overhead rate per direct labor hour. Round the answer to nearest whole cent.
$ per direct labor hour

Engine parts $856,300 Shop direct labor 625,000 Shop and repair equipment depreciation 39,600 Shop supervisor salaries 110,100 Shop property tax 20,000 Shop supplies 15,300 Advertising expense 17,100 Administrative office salaries 73,600 Administrative office depreciation expense 9,400 Total costs and expenses $1,766,400

Explanation / Answer

Computation of Total Overhead Cost

Total Direct Labour Hours = Shop direct labor / labor rate per hour =$625,000 / $25 = 25,000 hours

Overhead rate per direct labor hour = Total Overhead Cost / Total Direct Labour Hours = $185,000 / 25,000 hours = $7.40 per direct labor hour

Expenses Amount ($) Shop and repair equipment depreciation 39,600 Shop supervisor salaries 110,100 Shop property tax 20,000 Shop supplies 15,300 Total Overhead Cost $185,000

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