Question

ABC Company applies overhead to products using direct labor hours as the activity level. During 2020, ABC Company had the following estimated costs: Direct materials Direct labor ..... Advertising ....... Rent on factory building Depreciation Indirect materials Sales commissions Production supervisor's salary Insurance on factory equippent CEO's salary $258,000 255,000 35,000 36,000 60,000 43,000 50,000 59,000 24,000 95,000 The following additional information is available: 1. 30% of the depreciation relates to equipment in the administrative offices while 70% of the depreciation relates to equipment in the factory. 2. 20,000 direct labor hours are estimated for 2020. Calculate ABC Company's pre-determined overhead rate (PDR) for 2020 based on direct labor hours. Enter your answer with two places after the decimal point (i.e., 6.78).

Answer 1

Depreciation expense = $60,000

70% of depreciation relates to equipment in the factory.

Depreciation expense on factory equipment = 60,000 x 70%

= $42,000

Total estimated factory overheads = Rent on factory building + Indirect materials + Production supervisor;s salary + Insurance on factory equipment + Depreciation expense on factory equipment

= 36,000+43,000+59,000+24,000+42,000

= $204,000

Estimated direct labor hours = 20,000

Predetermined overhead rate = Total estimated factory overheads/ Estimated direct labor hours

= 204,000/20,000

= $10.20 per direct labor hours

Kindly give a positive rating if you are satisfied with this solution and please ask if you have any query.

Thanks