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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Predetermined factory overhead rate
Novus 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.

To determine

Concept Introduction:

Predetermined overhead allocation:

Manufacturing overhead cost is the pool of all indirect costs incurred for the production. These are the costs which are not directly traceable to the product. Manufacturing costs include indirect material indirect labor and overheads. These costs are allocated to the products using the predetermined overhead allocation rate. The formula of predetermined overhead allocation rate is as follows:

  Predetermined overhead allocation rate = Estimated Manufacturing overhead CostAllocation base 

To Calculate:

The Predetermined overhead rate

Explanation

The Predetermined overhead rate is calculated as follows:

    Overhead Costs:
    Shop and repair equipment depreciation $ 91,000
    Shop supervisor's salaries $ 250,000
    Shop property taxes $ 40,000
    Shop Supplies $ 15,000...

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