Question

Bramble Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K.

In establishing the predetermined overhead rates for 2020, the following estimates were made for the year.

		D		E		K
Manufacturing overhead		$1,089,000		$1,500,000		$960,000
Direct labor costs		$1,361,250		$1,375,000		$495,000
Direct labor hours		110,000		125,000		44,000
Machine hours		440,000		550,000		120,000

During January, the job cost sheets showed the following costs and production data.
														D		E		K
												Direct materials used		$154,000		$138,600		$85,800
												Direct labor costs		$132,000		$121,000		$41,250
												Manufacturing overhead incurred		$108,900		$136,400		$86,900
												Direct labor hours		8,800		12,100		3,850
												Machine hours		37,400		49,500		10,300

Compute the predetermined overhead rate for each department

Answer 1

The predetermined overhead rate for each department

Predetermined overhead rate for Department-D

Predetermined overhead rate = Manufacturing overhead / Direct labor costs

= $1,089,000 / $1,361,250

= 0.80 or

= 80.00%

Predetermined overhead rate for Department-E

Predetermined overhead rate = Manufacturing overhead / Direct labor hours

= $1,500,000 / 125,000 Direct labor hours   

= $12.00 per Direct labor hour

Predetermined overhead rate for Department-K

Predetermined overhead rate = Manufacturing overhead / Machine hours

= $960,000 / 120,000 Machine hours

= $8.00 per Machine hour