A welding company specializes in custom steel frames and uses job costing to acc

Question

A welding company specializes in custom steel frames and uses job costing to account for its operations. The following information is available as of May 1 for the work-in-process inventory account:

$2,520

Welding Company pays an hourly rate of $15 for direct labor. Manufacturing overhead costsare applied to jobs based on the direct labor hours used. During the month of May, Jacob Welding spends $5,800 to purchase materials and $4,650 for manufacturing overhead. The operations in May are summarized below.

Material Requisition

summary

304

Jobs 304, 306, 307 are completed in May but only Jobs 304 and 307 are delivered to customers.

Question: Calculate the predetermined overhead rate used.

Job# Direct Materials Direct Labor Man. Overhead Total Cost 304 $3,000 $1,800

$2,520

$7,320 306 4,000 2,100 2,940 9,040 Total Cost 7,000 3,900 5,460 16,360

Explanation / Answer

Budgeted labour hours = 3900 / 15 = 260 hours

Manufacturing Overhead = $5460

Predetermined Overhead rate = Manufacturing Overheads / Budgeted labour hours

= 5460 / 260

= $21 per labour hour

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