Question

Lott Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1, 2020, Job 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $21,400, direct labor $12,840, and manufacturing overhead $17,120. As of January 1, Job 49 had been completed at a cost of $96,300 and was part of finished goods inventory. There was a $16,050 balance in the Raw Materials Inventory account. During the month of January, Lott Company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the month for $130,540 and $169,060, respectively. The following additional events occurred during the month. 1. 2. 3. Purchased additional raw materials of $96,300 on account. Incurred factory labor costs of $74,900. Of this amount $17,120 related to employer payroll taxes. Incurred manufacturing overhead costs as follows: indirect materials $18,190; indirect labor $21,400; depreciation expense on equipment $12,840; and various other manufacturing overhead costs on account $17,120. Assigned direct materials and direct labor to jobs as follows. 4. Job No. 50 Direct Materials $10,700 41.730 32,100 Direct Labor $5,350 26.750 21,400 51 52 (a) Calculate the predetermined overhead rate for 2020, assuming Lott Company estimates total manufacturing overhead costs of $898,800, direct labor costs of $749,000, and direct labor hours of 21.400 for the year. Predetermined overhead rate

Answer 1

a) Predetermine overhead rate = estimated overhead/estimated labor cost

= 898800/749000

Predetermine overhead rate = 120% of labor cost