Custom Jeans Works is establishing its predetermined overhead rate for 2018. The
ID: 2526293 • Letter: C
Question
Custom Jeans Works is establishing its predetermined overhead rate for 2018. The measure of activity is the number of machine hours that the cutting machines operate which is estimated to be 16,250 for 2018. Based on the following, what rate should Custom Jeans Works utilize for its predetermined overhead rate in 2018?
Estimated Annual Expenses for 2018
Indirect materials
$ 230,450
Indirect labor
398,000
Factory utilities
50,000
Sales commissions
125,000
Factory rent
74,000
Factory maintenance
16,000
Total
$ 893,450
$39/machine hour
$47/machine hour
$63/direct labor hour
$63/machine hour
Estimated Annual Expenses for 2018
Indirect materials
$ 230,450
Indirect labor
398,000
Factory utilities
50,000
Sales commissions
125,000
Factory rent
74,000
Factory maintenance
16,000
Total
$ 893,450
Explanation / Answer
Predetermine overhead rate = Estimated overhead/estimated machine hour
= (893450-125000)/16250
Predetermine overhead rate = 47 per machine hour
so answer is b) $47/ machine hour
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