Question

Salmon Company uses a pre-determined overhead rate based on machine hours to apply overhead costs to jobs. At the beginning of 2019, the company estimated the following costs would be incurred: direct materials ....... .... direct labor .......... advertising expense ..... utilities ..................... rent on factory building .......... maintenance on factory equipment ... depreciation on factory equipment .. indirect materials ................. sales commissions .................. production supervisor's salary ..... $ 70,000 90,000 20,000 16,000 35,000 29,000 12,000 25,000 39,000 41,000 70% of the utilities relate to the factory while 30% of the utilities relate to the administrative office buildings. Salmon Company estimates that 8,000 machine hours will be used during 2019. Calculate Salmon Company's pre-determined overhead rate based on machine hours. Enter your answer as a number with two places after the decimal point (i.e., 12.89). Carmen may convert this to three places after the decimal point, which is fine.

Answer 1

Calculation of Pre determined Overhead rate based on Machine Hours: Step 1: Calculation of Estimated Overheads: These costs includes other than Direct materials, Direct Labor costs involved in Production Process. So, Advertising expenses, Sales commissions and 30% of Utilities expenses shall not included in calculation. A A Utilities ($16000 x 70%) Rent on Factory Building Maintenance on Factory Equipment Depreciation on Factory Equipment Indirect Materials Production Supervisor's Salary Total Estimated Overheads A A 11,200.00 35,000.00 29,000.00 12,000.00 25,000.00 41,000.00 153,200.00 A $ Step 2: Calculation of Predetermined Overhead Rate: Predetermined Overhead Rate = Estimated Overhead / Allocation Base = $153,200 / 8,000 M.Hrs = $19.15