Willies Engine Shop uses a job order cost system to determine the cost of perfor

Question

Willies Engine Shop uses a job order cost system to determine the cost of performing engine repair work. Estimated costs and expenses for the coming period are as follows:

Engine Parts 875000
Shop direct labor 640000
shop & repair equip depre 45000
Shop supervisor salaries 125800
Shop property tax 22600
shop supplies 16600
ad. ex 17800
admin office salaries 75000
admin office depre ex 10000
-------
1,827,000

The average shop direct labor rate is $16 per hour


Determine the predetermined shop overhead rate per direct labor hour. Round the answer to nearest whole cent.

Explanation / Answer

Shop OH will consist of sum of :- shop & repair equip depre 45000 Shop supervisor salaries 125800 Shop property tax 22600 shop supplies 16600 ------------------------------ So Shop OH = 210,000 Ad exp, Office exp are part of General OH & Not Shop OH. DL rate is $16 & Total DL cost is $640,000 S0 DL Hrs = $640,000/$16 = 40,000 hrs SO predetermined shop overhead rate per direct labor hour = Shop OH/DL Hrs = $210000/40000 = $5.25

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