29) 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:

Ꮎ

Ꮎ

Ꮎ

Direct materials

Direct labor

Rent on factory building

Sales salaries

Depreciation on factory equipment

Indirect labor

Production supervisor's salary

Ꮎ

6,000

20,000

15,000

25,000

8,000

12,000

15,000

Ꮎ

Ꮎ

Ꮎ

Jameson estimates that 20,000 direct labor-hours will be worked during the year. The

predetermined overhead rate per hour will be:

A) $2.50 per direct labor-hour

B) $2.79 per direct labor-hour

C) $3.00 per direct labor-hour

D) $4.00 per direct labor-hour

The correct Answer is predetermined overhead rate = $2.50 per direct labor hour.

Explanation:

Overhead is those costs required to run a business, but which cannot be directly attributed to any specific, for example, rent, factory overheads, depreciation, indirect labor and production supervisor's salary.

Total manufacturing overheads = Rent of factory building + Depreciation on factory equipment + Indirect labor + Production supervisor's salary

Total manufacturing overheads = $15,000 + $8,000 + $12,000 + $15,000

Total manufacturing overheads = $50,000

Total Direct labor hours in the year = 20,000

Predetermined Overhead Rate per labor hour = $50,000/20,000

Predetermined Overhead Rate per labor hour = $2.50 per direct labor hour

Note:

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.