ABC Company uses a pre-determined overhead rate based on direct labor hours to a
ID: 2568533 • Letter: A
Question
ABC Company uses a pre-determined overhead rate based on direct labor hours to apply overhead to jobs. At the beginning of 2018, the company estimated the following costs would be incurred: direct materials ................... $ 62,500 direct labor ....................... 96,000 (8,000 hours expected) advertising expense ................ 15,000 utilities .......................... 30,000 rent on factory building ........... 18,000 depreciation on factory equipment .. 9,000 indirect materials ................. 14,000 sales commissions .................. 33,000 production supervisor's salary ..... 28,500 45% of the utilities relate to the administrative office buildings while 55% of the utilities relate to the factory. Calculate ABC Company's pre-determined overhead rate based on direct labor hours. List your answer with two places after the decimal point (i.e., $7.63).
Explanation / Answer
Overhead costs: Utilities 16500 Rent on factory building 18000 Depreciation on factory equipment 9000 Indirect materials 14000 Production supervisor's salary 28500 Total 86000 Pre-determined overhead rate = 86000/8000= 10.75