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Johansen Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to...

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Accounting

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

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4.4 Ratings (572 Votes)

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.    
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