Engine parts $ 980,000
Shop direct labor 750,000
Shop and repair equipment depreciation 53,500
Shop supervisor salaries 140,000
Shop property taxes 26,300
Shop supplies 20,200
Advertising expense 19,900
Administrative office salaries 84,000
Administrative office depreciation expense 11,200
Total costs and expenses $2,085,100
The average shop direct labor rate is $25 per hour.
Determine the predetermined shop overhead rate per direct labor hour.
Answer:
The estimated shop overhead is determined as follows:
Shop and repair equipment depreciation ............................................................... $ 53,500
Shop supervisor salaries........................................................................................... 140,000
Shop property taxes................................................................................................... 26,300
Shop supplies ............................................................................................................. 20,200
Total shop overhead ............................................................................................. $240,000
The engine parts and shop labor are direct to the jobs and are not included in the
shop overhead rate. The advertising and administrative expenses are selling and
administrative expenses that are not included in the shop overhead but are
treated as period expenses.
The estimated activity base is determined by dividing the shop direct labor cost
by the direct labor rate, as follows:
$750,000
$25 per hour
= 30,000 hours
The predetermined shop overhead rate is:
$240,000
30,000 hours
= $8.00 per direct labor hour