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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Predetermined factory overhead rate

Street. Runnier 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 race is $20 per hour.

Determine the predetermined shop overhead rate per direct labor hour.

To determine

Predetermined factory overhead rate

Normally, factory overhead costs are applied or allocated to cost of job based on predetermined factory overhead rate. The formula to calculate the predetermined factory overhead rate is as follows:

Predetermined factory overhead rate = Estimated total factory overhead costsEstimated activity rate

To determine: the predetermined shop overhead rate of Company SR.

Explanation

The predetermined shop overhead rate is calculated as follows:

Predetermined shop overhead rate = Estimated total factory overhead costsEstimated activity base=$205,000Table (1)25,000 direct labor hours(1)=$8.20

Working notes:

The total shop supplies overhead is calculated as follows:

Particulars Amount ($)
Shop and repair equipment depreciation 40,000
Shop supervisor salaries 133,000
Shop property tax

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