Wheeler’s Bike Company manufactures custom racing bicycles. The company uses a job order cost system to determine the cost of each bike. Estimated costs and expenses for the coming year follow:
Bike parts $350,000
Factory machinery depreciation $55,000
Factory supervisor salaries $140,000
Factory direct labor $300,000
Factory supplies $7,500
Factory property tax $37,500
Advertising cost $14,500
Administrative salaries $80,000
Administrative-related depreciation $16,000
Total expected costs $1,000,500
Required:
1. Calculate the predetermined overhead rate per direct labor hour if the average direct labor rate is $15 per hour.
2. Determine the amount of applied overhead if 18,500 actual hours are worked in the upcoming year.
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To answer the first question, we need to calculate the predetermined overhead rate per direct labor hour. This rate is necessary for allocating overhead costs to the production of each bike based on the direct labor hours worked.
To calculate the predetermined overhead rate per direct labor hour, we divide the estimated overhead costs by the estimated direct labor hour usage.
1. Calculate the estimated direct labor hour usage:
Given that the average direct labor rate is $15 per hour and the estimated direct labor cost is $300,000, we can divide the estimated direct labor cost by the average direct labor rate to find the estimated direct labor hour usage.
Estimated direct labor hour usage = Estimated direct labor cost / Average direct labor rate
= $300,000 / $15
= 20,000 direct labor hours
2. Calculate the predetermined overhead rate per direct labor hour:
The predetermined overhead rate per direct labor hour is calculated by dividing the estimated overhead costs by the estimated direct labor hour usage.
Predetermined overhead rate per direct labor hour = Estimated overhead costs / Estimated direct labor hour usage
= $1,000,500 / 20,000 direct labor hours
= $50.03 per direct labor hour (rounded to two decimal places)
Now, let's move on to the second question.
To determine the amount of applied overhead, we multiply the predetermined overhead rate per direct labor hour by the actual direct labor hours worked.
1. Calculate the amount of applied overhead:
Given that the actual direct labor hours worked are 18,500, we can multiply the actual direct labor hours by the predetermined overhead rate per direct labor hour to find the amount of applied overhead.
Amount of applied overhead = Predetermined overhead rate per direct labor hour * Actual direct labor hours
= $50.03 per direct labor hour * 18,500 direct labor hours
= $925,555
Therefore, the amount of applied overhead for 18,500 actual hours worked in the upcoming year is $925,555.