Fortify, Inc. uses a predetermined manufacturing overhead rate based on direct l

Question

Fortify, Inc. uses a predetermined manufacturing overhead rate based on direct labor hours to apply its indirect product costs to jobs. The following information has been collected for the previous year: Direct materials $ 150,000 Direct labor 200,000 Sales commissions 100,000 Indirect labor 50,000 Rent on office equipment 25,000 Depreciation — factory building 75,000 Utilities — factory 125,000 Fortify used 25,000 direct labor hours and 50,000 machine hours during the previous year. What is the predetermined overhead rate per direct labor hour?

Explanation / Answer

The predetermined overhead rate per direct labor hour is:

= ($50,000 + $75,000 + $125,000) / 25,000

= $10.00

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