Paulson Company had the following estimated costs for 2019: Direct materials ...
ID: 2430443 • Letter: P
Question
Paulson Company had the following estimated costs for 2019: Direct materials .................... $28,000 Direct labor ........................ 22,000 Advertising expense ................. 15,000 Rent on factory building ............ 13,500 Depreciation on factory equipment ... 6,500 Indirect materials .................. 10,000 Sales commissions ................... 40,000 Production supervisor's salary ...... 28,000 Insurance on equipment .............. 15,000 It is known that 40% of the insurance relates to equipment in the factory while 60% of the insurance relates to the equipment in the administrative offices. Paulson Company estimates that 25,000 machine hours will be used during 2019. Calculate Paulson Company's pre-determined overhead rate based on machine hours.
Explanation / Answer
Predetermine overhead rate :
Rent on factory building 13500 Depreciation on factory equipment 6500 Indirect material 10000 Product supervisor salary 28000 Insurance (15000*40%) 6000 Total estimated overhead 64000 Estimated machine hour 25000 Predetermine overhead rate 2.56 per machine hour