Question

Speedy Auto Repairs uses a job-order costing system. The company’s direct materials consist of replacement parts installed in customer vehicles, and its direct labor consists of the mechanics’ hourly wages. Speedy’s overhead costs include various items, such as the shop manager’s salary, depreciation of equipment, utilities, insurance, and magazine subscriptions and refreshments for the waiting room.The company applies all of its overhead costs to jobs based on direct labor-hours. At the beginning of the year, it made the following estimates:Direct labor-hours required to support estimated output 20,000Fixed overhead cost $ 350,000Variable overhead cost per direct labor-hour $ 1.00Required:1. Compute the predetermined overhead rate.

Answer 1

Answer: $18.5

Explanation:

Given that,

Direct labor-hours = 20,000

Fixed overhead cost = $350,000

Variable overhead cost per direct labor-hour = $ 1.00

Fixed overhead cost per direct labor-hour = $\frac{350,000}{20,000}$

                                                                       = $17.5

Predetermined overhead rate = Variable overhead cost per direct labor-hour + Fixed overhead cost per direct labor-hour

                                                  = $1.00 + $17.5

                                                  = $18.5