California Customs Designs, LLC, is a business that customizes motorcycles and a

Question

California Customs Designs, LLC, is a business that customizes motorcycles and automobiles according to the customers' specifications. The company uses a job-order accounting system. Factory overhead is applied to production on the basis of direct labor hours. Estimated overhead costs for the coming year amount to $860,000. The company expects to operate at 80% of capacity, utilizing 16,000 direct labor hours. Inputs: 1. What is the estimated total factory overhead costs? 2. What is the estimated activity base direct labor hours? Output: 3. What is the predetermined factory overhead rate per direct labor hour?

Explanation / Answer

Total overhead cost (100% capacity) = 860,000 / 0.8 = 1075,000
Total Lab hours (100% capacity) = 16,000 / 0.8 = 20,000

Per determined FOH per labour hour = 1075,000 / 20,000 = $53.75 FOH per labour hour

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