Question

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:

Engine parts		$1,257,500
Shop direct labor		550,000
Shop and repair equipment depreciation		91,000
Shop supervisor salaries		250,000
Shop property taxs		40,000
Shop supplies		15,000
Advertising expense		75,000
Administrative office salaries		175,000
Administrative office depreciation expense		12,500
Total costs and expenses		$2,466,000

The average shop direct labor rate is $25 per hour. Determine the predetermined shop overhead rate per direct labor hour.
$ per direct labor hour

Answer 1

Overhead to be incurred in the shop
	Shop and repair equipment depreciation	91,000
	Shop supervisor salaries	250,000
	Shop property taxes	40,000
	Shop supplies	15,000
	Total Overhead Expenses in the Shop	$396,000
	Calculation of Labor Hours
	Shop direct labor	550,000
	Labor Rate per hour	25
	Labor Hours = Total Labor cost/Labor Rate Per Hour	=550000/25
	Total Labor Hours	22000
	Total Overhead Expense of Shop	396000
	Total Labor Hours	22000
	Overhead Rate for the Shop	=Total overhead expenses/Total Labor Hours
		=396000/22000
		$                  18.00
Important Notes
Engine Parts cost and Shop Direct Labor cost is not Taken for calculation of Predetermined Overhead Rate for Shop
Engne Parts cost is taken to be direct material costs
following overhead are also not taken for calculation of overhead rate for repair shop
Shop Direct Labor cost		550,000
Engine Parts		$1,257,500
Advertising expense		75,000
Administrative office salaries		175,000
Administrative office depreciation expense		12,500

FEEL FREE TO ASK ANY CLARIFICATION IF ANY REQUIRED KINDLY PROVIDE FEED BACK BY THUMBS UP IF SATISFIED IT WILL BE HIGHLY APPRECIATED