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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1. To calculate the predetermined overhead rate per direct labor hour, we need to divide the total estimated factory overhead costs by the estimated direct labor hours.
Total estimated factory overhead costs = Bike parts + Factory machinery depreciation + Factory supervisor salaries + Factory supplies + Factory property tax + Advertising cost + Administrative-related depreciation
= $350,000 + $55,000 + $140,000 + $7,500 + $37,500 + $14,500 + $16,000
= $620,500
Estimated direct labor hours = Factory direct labor / Average direct labor rate
= $300,000 / $15
= 20,000 hours
Predetermined overhead rate per direct labor hour = Total estimated factory overhead costs / Estimated direct labor hours
= $620,500 / 20,000 hours
= $31.025 per hour
Therefore, the predetermined overhead rate per direct labor hour is $31.025.
2. To determine the amount of applied overhead, we need to multiply the predetermined overhead rate per direct labor hour by the actual hours worked.
Applied overhead = Predetermined overhead rate per direct labor hour x Actual hours worked
= $31.025 x 18,500 hours
= $574,212.50
Therefore, the amount of applied overhead is $574,212.50.
To calculate the predetermined overhead rate per direct labor hour, you need to divide the estimated total manufacturing overhead costs by the estimated total direct labor hours.
1. To calculate the predetermined overhead rate per direct labor hour:
Estimated total manufacturing overhead costs = Bike parts + Factory machinery depreciation + Factory supervisor salaries + Factory supplies + Factory property tax = $350,000 + $55,000 + $140,000 + $7,500 + $37,500 = $590,000
Estimated total direct labor hours = Factory direct labor / Average direct labor rate = $300,000 / $15 = 20,000 hours
Predetermined overhead rate per direct labor hour = Estimated total manufacturing overhead costs / Estimated total direct labor hours
Predetermined overhead rate per direct labor hour = $590,000 / 20,000 hours
Predetermined overhead rate per direct labor hour = $29.50
2. To determine the amount of applied overhead:
Applied overhead = Predetermined overhead rate per direct labor hour * Actual direct labor hours
Applied overhead = $29.50 * 18,500 hours
Applied overhead = $545,750
Therefore, the amount of applied overhead if 18,500 actual hours are worked in the upcoming year is $545,750.