Question

Johansen Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for the next year: Direct materials $ 6,000 Direct labor $ 20,000 Rent on factory building $ 15,000 Sales salaries $ 25,000 Depreciation on factory equipment $ 8,000 Indirect labor $ 12,000 Production supervisor's salary $ 15,000 Jameson estimates that 20,000 direct labor-hours will be worked during the year. The predetermined overhead rate per hour will be: Multiple Choice $2.50 per direct labor-hour $2.79 per direct labor-hour $3.00 per direct labor-hour $4.00 per direct labor-hour

Answer 1

Correct Answer ----Predetermined overhead rate -$2.50

Explanation and calculations

Schedule of Predetermined Overhead rate
Manufacturing Overheads
Rent of Factory Building	$    15,000.00
Depreciation on Factory Equipment	$      8,000.00
Indirect Labor	$    12,000.00
Production Supervisor's Salary	$    15,000.00
(A) Total Estimated Overheads	$    50,000.00
(B) Total Direct labor hours in the year	$    20,000.00
(A/B) Predetermined Overhead Rate per labor hour	$               2.50

Sales salary is a selling expense and not a product cost hence it will not be included for calculating predetermined overhead rate.

Direct material and labor are direct expenses, they are product cost but not a part of Overhead cost.