Question

Agassi Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K.

In establishing the predetermined overhead rates for 2020, the following estimates were made for the year.

		Department
		D		E		K
Manufacturing overhead		$1,080,000		$1,500,000		$1,020,000
Direct labor costs		$1,542,857		$1,250,000		$450,000
Direct labor hours		100,000		125,000		40,000
Machine hours		400,000		500,000		120,000

During January, the job cost sheets showed the following costs and production data.

		Department
		D		E		K
Direct materials used		$140,000		$126,000		$78,000
Direct labor costs		$120,000		$110,000		$37,500
Manufacturing overhead incurred		$99,000		$124,000		$79,000
Direct labor hours		8,000		11,000		3,500
Machine hours		34,000		45,000		9,000

(a)

Compute the predetermined overhead rate for each department. (Round answers to 2 decimal places, e.g. 12.50 or 12.50%.)

		Overhead rate
Department D			%
Department E		$	per direct labor hour
Department K		$	per machine hour

Answer 1

	Particulars	D	E	K
a	Manufacturing overhead	$1,080,000	$1,500,000	$1,020,000
b	Direct labor costs	$1,542,857	$1,250,000	$450,000
c	Direct labor hours	100,000	125,000	40,000
d	Machine hours	400,000	500,000	120,000
	Pre determined overhead Rate
	a/b*100	70%
	a/c		12.00
	a/d			8.50

Pre determined overhead rate:

D: 70%

E: 12 per direct labour hour

K: 8.50 per machine hour