Asked by suzette martinez on May 03, 2024
Verified
Lueckenhoff Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $497,000, variable manufacturing overhead of $2.40 per direct labor-hour, and 70,000 direct labor-hours. The company has provided the following data concerning Job T498 which was recently completed: The predetermined overhead rate is closest to:
A) $11.90 per direct labor-hour
B) $7.10 per direct labor-hour
C) $9.50 per direct labor-hour
D) $2.40 per direct labor-hour
Predetermined Overhead Rate
An estimated rate used to assign manufacturing overhead costs to products based on a cost driver, calculated before the period begins.
Variable Manufacturing Overhead
Overhead costs that vary with production volume, including indirect labor and utilities.
Direct Labor-Hours
The total hours of labor time directly involved in producing goods or providing services, often used as a basis for allocating manufacturing overhead.
- Determine and appreciate the value of fixed overhead rates in job-order costing methodologies.
Verified Answer
Total overhead cost = fixed overhead cost + (variable overhead rate x direct labor-hours)
Total overhead cost = $497,000 + ($2.40 x 70,000)
Total overhead cost = $497,000 + $168,000
Total overhead cost = $665,000
Predetermined overhead rate = total overhead cost / direct labor-hours
Predetermined overhead rate = $665,000 / 70,000
Predetermined overhead rate = $9.50 per direct labor-hour
Therefore, the closest predetermined overhead rate is $9.50 per direct labor-hour, which is option C.
Learning Objectives
- Determine and appreciate the value of fixed overhead rates in job-order costing methodologies.
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