Predetermined overhead rate

Predetermined overhead rate is used to apply manufacturing overhead to products or job orders and is usually computed at the beginning of each period by dividing the estimated manufacturing overhead cost by an allocation base (also known as activity base or activity driver). Commonly used allocation bases are direct labor hours, direct labor dollars, machine hours, and direct materials.

Formula:

The formula of predetermined overhead rate is written as follows:

predetermined-overhead-rate-img1

Example:

Suppose GX company uses direct labor hours to assign manufacturing overhead cost to job orders. The budget of the GX company shows an estimated manufacturing overhead cost of $8,000 for the forthcoming year. The company estimates that 1,000 direct labors hours will be worked in the forthcoming year.

Using the above information, we can compute the predetermined overhead rate as follows:

Predetermined overhead rate = Estimated manufacturing overhead cost/Estimated total units in the allocation base

Predetermined overhead rate = $8,000 / 1,000 hours

= $8.00 per direct labor hour

Notice that the formula of predetermined overhead rate is entirely based on estimates. The overhead applied to products or job orders would, therefore, be different from the actual overhead incurred by jobs or products. This difference is eliminated at the end of the period. The elimination of difference between applied overhead and actual overhead is known as disposition of over or under applied overhead.

Multiple Predetermined overhead rate:

The predetermined overhead rate computed above is known as single predetermined overhead rate or plant-wide overhead rate. It is mostly used by small companies. In large companies, each production department computes its own predetermined overhead rate. The use of multiple predetermined overhead rates may be complex and time consuming but is considered more accurate than a single plant-wide overhead rate.

According to a survey 34% of the manufacturing businesses use a single plant wide overhead rate, 44% use multiple predetermined overhead rates and rest of the companies use activity based costing (ABC) system.

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61 Thoughts on Predetermined overhead rate

  1. Bon Bagayi

    Thanks for this description of the PDOHR. now I have this problem, and I seem not to be able to apply the formula you have just described. here is:
    Departments
    Acut Bmach Asst tot plant
    Direct Mat. 1200 90 560 90000
    Direct labor 650 170 1300 2120
    Mafg Overhead ? ? ?

    on the basis of direct labor cost.Determinine the manufacturing overhead cost that would have been applied
    how do I compute the rate for each department?

  2. Tina Bonne

    Manufacturing overhead is $420,000, and total machine hours are 60,000. Do I divide machine hours by manufacturing overhead to get the predetermined overhead rate?

  3. Accounting For Management

    If $420,000 is estimated manufacturing overhead cost for a period and the company uses machine hours as the activity driver (see first paragraph of the main article), then you need to divide $420,000 by 60,000 hours. The predetermined overhead rate would be $7.00 per machine hour as calculated below:

    = $420,000/60,000
    = $7 per machine hour

    I repeat that the estimated, not actual, manufacturing overhead (also known as factory overhead) is used to calculated predetermined overhead.

    1. sandy

      I need help. problem? Compute the predetermined Overhead Rate.
      Beginning of the year estimated 20,000 direct labor hours required for the period for production, $94,000 fixed manufacturing overhead expenses for the upcoming period and variable manufacturing overhead $2.00 per direct labor-hour. The actual manufacturing overhead for the year was $123,900 and actual total direct labor was 21,000 hours. compute predetermined overhead rate for the year.

      1. sandy

        never mind i figured it out, but thanks anyway

  4. anne

    if the ques. states that it has more than one departments, eg. an assemble dept and gives m/overhead,DLC, DLL,and machine hours. how do i calculate the overhead rate for the assembly dept.?

  5. Jin

    Problem:
    Estimated direct labor cost and total manufacturing overhead to be $60,000 and $45,000 respectively. During the period, the company incurred actual manufacturing overhead cost of $52,000 and $71,000 of direct labor cost.
    Question: Predetermined Overhead Rate?
    Overhead Applied?

    Is this correct? $45,000/$60,000 =0.75 or 75% for Predetermined Overhead Rate

    or should 75% is given in the problem?

  6. Accounting For Management

    It is correct.

    Companies can use direct labor cost as denominator if it is the best allocation base for them.

  7. imran shaheen

    If Budgeted overhead is given, lets say:
    Budgeted Overhead is=778
    Machine hours=65
    Labor hours=90
    then what will be the rate for both machine hours and labor hours?

    1. Accounting For Management

      (1) 778/65 = 11.97 per machine hour
      (2) 778/90 = 8.64 per direct labor hour

  8. johnnyfeced

    Hi there! thank you so much. I learned a lot. 🙂 I have a question. job no. 629 was sold at a gross margin of 50% or for 36,000. Its cost includes direct materials of 8,000 with factory overhead applied at 60% of direct labor cost. How much factory overhead was charged to the job? Thanks a lot, God bless you. 🙂

  9. Accounting For Management

    Sale price = 36,000
    Gross margin = 50%
    Sales = Cost + Profit
    150% = 100% + 50%
    Cost of the job = (36,000/150)*100 = 24,000
    Direct materials cost = 8,000
    Direct labor and factory overhead cost = 24,000 – 8,000 = 16,000
    Direct labor and factory overhead = Direct labor + Factory overhead
    160% = 100% + 60%
    Direct labor = (16,000/160)*100 = 10,000
    Factory overhead = 16,000 – 10,000 = 6,000

  10. maria

    hi,

    I have a question, what would be the predetermined overhead rate. If
    the Estimated machine hours
    85,000
    Estimated variable manufacturing overhead
    $5.55 per machine hour
    Estimated total fixed manufacturing overhead
    $951,888

  11. Aj

    The FOH rate is 11.2 (rounded off)
    machine hours is for fixed and the direct labor hours is for variable so $951,888/85000

  12. bambam

    I think it’s

    (5.55*85,000)+951,888= 1,423,638(estimated manufacturing overhead)

    1,423,638/85000= $16.75 per machine hours 🙂

  13. Accounting For Management

    bambam seems to be accurate.

  14. lorna

    i have questions:
    below are partial data for overhead costs and activity levels for three different companies.

    Items A B C
    Budgeted MOH 1,600,000 1,800,000 1,500,000
    Actual MOH 1,744,000 ? 1,486,000
    Applied OH 1,715,200 1,764,000 ?
    Budgeted level of Activity 500,000 DLH 400,000 DLH ?
    Actual level of Activity ? 392,000 DLh 620,000 DLH
    Underapplied ? (46,800) (64,000)
    (overapplied) OH

    …how can i find those missing values for each companies.

  15. Jimmy

    I do not understand why do we relate direct labor costs (direct labor hours) to indirect production costs (fixed manufacturing overhead).

  16. Rachel

    yes jin,,,,,,75% is correct…. who can explain for me the difference between over-applied overhead and under-applied overhead.

  17. Jomar

    How can I calculate a plantwide predetermined overhead rate based on direct labor hours ?
    tnx

  18. Anannya

    I have a question.160% of 16000=10000 how its possibble.and when it happen.pls explan.

  19. Accounting For Management

    16,000 is the conversion cost (direct labor + FOH.)
    FOH is 60% of direct labor. So

    Direct labor = (16,000/160)*100
    and
    FOH = (16,000/160)*60

  20. Noraima

    Hi,

    I need some guidance. I have tried to figure this out and am so lost I can’t figure it out.
    I am looking for the predetermined manufacturing overhead rate for each department.

    Dept. 1
    MOH 1,800,000
    Direct manufacturing labor cost 1400000
    machine hours 50000

    dept. 2
    MOH 3,600,000
    Direct manufacturing labor cost 2,000,000
    machine hours 200,000

  21. Foxy

    Hi how do you answer this.
    Marvin company’s estimated factory overhead for the year was p456120 and the actual overhead was p470800. Machines hours were used in determining factory overhead application rate. There were 84500 actual machines and 81450 estimated machine houra during the day.
    Prepare journal entries to record:
    The applied factory overhead
    The actual factory overhead
    The closing of the applied overhead account and actual factory account

    Thankyou

  22. ELIZABETH

    I am given information as follows:
    engine parts
    shop direct labor
    shop and repair equipment depreciation
    shop supervisor salaries
    shop property tax
    shop supplies
    advertising expense
    administrative office salaries
    administrative office depreciation expense
    and total costs and expenses

    direct labor rate is given also.

    How do I figure the predetermined shop overhead rate per direct labor hour?
    PLEASE someone clarify this for me
    Thank you

  23. Barbara

    fabricating machining assembly total plant
    direct labor $203,000 $101,500 $304,500 $609,000
    manufactoverhead $355,250 $406,000 $91,350 $852,600

    department
    direct materials $3,300 $200 $1,700 $5,200
    direct labor $3,400 $500 $6,500 $10,400
    manufactoverhead $ $ $ $

    assuming use of a plantwide overhead rate to apply manfacing overhead rate to jobs:

    1. compute rate for the current year
    2. determine the amt to listed job

  24. Shaheen

    Hi,
    Can someone help me with this question:
    See below…
    Setup (1,000 setup hours) $136,000
    Production scheduling (400 batches) 70,000
    Production engineering (60 change orders) 60,000
    Supervision (2,000 direct labor hours) 60,000
    Machine maintenance (12,000 machine hours) 108,000
    Total activity costs $434,000

    The following additional data were provided for Job 845:

    Direct materials costs $7,000
    Direct labor cost (5 Milling direct labor hours;
    35 Finishing direct labor hours) $1,000
    Setup hours 5 hours
    Production scheduling 1 batch
    Machine hours used (25 Milling machine hours;
    5 Finishing machine hours) 30 hours
    Production engineering 3 change orders

    Calculate the cost of Job 845 using the plantwide overhead rate based on machine hours.

  25. Daniella RIvera

    This is was very helpful thank you ! I understand how to get the predetermined overhead rate, however I am confused with a problem I am given. It gives me DM and DL, but no overhead costs. All it says overhead is applied at a rate of 120% of DL, jobs are sold at 60% and admin expense was 2950. the Beginning balance was 0 and that Job 12 were 16 are sold, but the customer who ordered Job 14 decided he did not want the slide so it is still in the warehouse. It asks for the finished goods, but I do not how to find it without the O/h rate.If you have any tips on how to go about this that would be very helpful! thank you!
    Here is the data
    9/1 Balance
    job 12-$615
    job 13-$830
    job 14-$945
    job 15- no number given
    Job 16- no number given
    Direct materials
    job 12-750
    job 13-235
    job 14-1,280
    job 15-$200
    job 16-$915
    Direct labor
    job 12-420
    job 13-115
    job 14-560
    job 15-320
    job 16-87

  26. Andy Gee

    Great question shaheen

  27. Xavier

    Hi

    Need to calculate predetermined rate where budgeted overhead rate is $462,000 and budgeted total direct labour hours is 21,000. how do i get the overhead rate in percentage

  28. Kean

    Hello.. just learn this slybus..can someone help me..
    Variable overhead cost per direct labor hour…………. $2
    Total Fixed overhead cost per year……………………$250,000
    Budgeted Standart direct labour(denominator lvl of act)…. 40,000
    Actual Direct Labour Hours…………………………… 39,000
    Standard direct labour hour allowed for the actual output.. 38,000

    Compute the predetermine overhead rate for the year?

  29. Arif

    I was wondering a bit.. are manufacturing overhead costs consist of variable and fixed overhead?

  30. Rilzco

    Hi
    I’m still waiting for a response .
    Thanks

  31. Nitz

    hii… i have a problem here. can anybody help me solve this out?
    qtn says a company manufactures 2 product 1 &2.
    To determine the amount of overhead to assign to each product line, following information are given.

    Product 1
    -estimated wheel produce 45000
    -direct labor hrs/wheel is 1

    product 2
    -estimated wheel produce 20000
    -direct labour hrs/wheel is 2
    total estimated overhead cost for the two product line is $700,000.
    required: compute the overhead costs assigned to the priducts assuming labour hours is used to allocate overhead cost.

    how will i compute it.?

  32. alena

    Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 48,000 actual direct labor-hours and incurred $552,000 of actual manufacturing overhead cost. The Corporation had estimated that it would work 46,000 direct labor-hours during the year and incur $506,000 of manufacturing overhead cost. The Corporation’s manufacturing overhead cost for the year was:???

  33. Everlyn

    I have a question which is on how to make journal entries on applied factory overhead based on machine hours, $37000?

  34. aziza

    kindly show me adetail explanation of overhead

  35. azeb

    pls can some one help me in this question plsss
    On August 1, Cimino Company had the following balances in its inventory accounts
    Materials Inventory $16,350
    Work-in-Process Inventory 21,232
    Finished Goods Inventory 15,200
    Work-in-process inventory is made up of three jobs with the following costs:

    Job 30 Job 31 Job 32
    Direct materials $2,650 $1,900 $3,650
    Direct labor 1,900 1,340 4,000
    Applied overhead 1,520 1,072 3,200

    During August, Cimino experienced the following transactions:
    a. Purchases materials on account for $21,000.
    b. Requisitioned materials: Job 30, $12,500; Job 31, $11,200; and Job 32, $5,500.
    c. Collected and summarized job tickets: Job 30, 250 hours at $12 per hour; Job 31,
    275 hours at $15 per hour; and Job 32, 140 hours at $20 per hour.
    d. Applied overhead on the basis of direct labor cost.
    e. Actual overhead was $8,718.
    f. Completed and transferred Job 31 to the finished goods warehouse.
    g. Shipped Job 31 and billed the customer for 130 percent of the cost.

    Required:
    1. Prepare a physical flow schedule.
    2. Calculate equivalent units of production for:
    a. Direct materials
    b. Conversion costs
    3. Calculate unit costs for:
    a. Direct materials
    b. Conversion costs
    c. Total manufacturing
    4. Provide the following information:
    a. The total cost of units transferred out
    b. The journal entry for transferring costs from plate cutting to welding
    c. The cost assigned to units in ending inventory

  36. azeb

    sorry the above required is not for these question. the right one is this:::::—–
    Required:
    1. Calculate the predetermined overhead rate based on direct labor cost.
    2. Calculate the ending balance for each job as of August 31.
    3. Calculate the ending balance of Work in Process as of August 31.
    4. Calculate the cost of goods sold for August.
    5. Assuming that Cimino prices its jobs at cost plus 30 percent, calculate the price of the one job that was sold during August. (Round to the nearest dollar.)

  37. Sharma

    Hi all ,
    can somebody help me to know , what factors should be considered in selecting the base to be used in calculating the predetermined factory overhead rate. What would happen to factory overhead rates based on the direct labour hours when automated equipment is used intensively ????

    Please reply as soon as possible .
    Thanks

  38. Rachel

    Hi! I have a problem and I’m very confused:

    Job 31 has a direct materials cost of $390 and a total manufacturing cost of $1,260. Overhead is applied to jobs at a rate of 200 percent of direct labor cost.

    How am I suppose to find the Manufacturing Overhead and the Direct Labor cost with just that information?

  39. Accounting For Management

    Total manufacturing cost = Direct materials + Direct labor + Manufacturing overhead
    Suppose Direct labor = X; Manufacturing overhead = 2X (double or 200% of DL)
    1,260 = 390 + X + 2X
    1260 – 390 = 3X
    X = 870/3
    X = 290
    Direct labor = 290
    and manufacturing overhead is 200% of direct labor so it is 2*290 = 580

  40. Bobina

    hi. any one can help me?
    how to calculate for this question.
    predetermined overhead rate at the beginning of the year Machine-hours 75,000 Manufacturing overhead cost $900,000
    during the year Machine-hours 60,000 manufacturing overhead cost $850,000
    question:compute the predetermined overhead rate?

  41. umer

    plz can you explain me how to compute percentage of FOH which is based on direct labor.

  42. vinaya

    Hi, How are you?
    Am having problems to compute predeterminded manufacturing overhead rate
    Can you please help me.

  43. Gina Heart

    Need help please! Hve no ideal how to work this problem Dinklemyer Corporation uses direct labor hours as its single cost driver. Actual overhead costs and actual direct labor hours for the first five months of the current year are as follows;
    Actual Total Overhead Actual Direct Labor Hours
    January $ 975,000 19,250
    February 950,000 18,400
    March 860,000 17,000
    April 700,000 12,375
    May 760,000 13,200
    Compute the company’s estimated variable manufacturing overhead cost per DHL.

  44. james

    Hey can someone please help me ASAP. To determine the cost of a job, should i use the predetermined overhead rate or calculate the actual overhead rate?

  45. Warren

    I have a question, What would my Predetermined OH rate be for this setup?
    Exhibit 1
    Product Profitability Analysis

    Valves Pumps Flow Controllers
    Standard Unit Cost $37.56 $63.12 $56.50
    Target Selling Price $57.78 $97.10 $86.96
    Planned Gross margin % 35% 35% 35%
    Last Month
    Actual Selling Price $57.78 $81.26 $97.07
    Actual Gross Margin 35% 22% 42%

    Exhibit 2
    Monthly Production and Cost Summary

    Product Lines Valves Pumps Flow Controllers
    Montly Production 7,500 Units 12,500 Units 4,000 Units
    (1 Run) (5 Runs) (10 Runs)
    Monthly Shipments 7,500 Units 12,500 Units 4,000 Units
    (1 Shipment) (7 Shipments) (22 Shipments

    Material and labor Costs Monthly Total
    Material 4 Components 5 Components 10 Components
    2 @ $ 2 = $ 4 3 @ $ 2 = $ 6 4 @ $ 1 = $ 4
    2 @ 6 = 12 2 @ 7 = 14 5 @ 2 = 10
    1 @ 8 = 8
    Totals $16.00 $20.00 $22.00 $458,000.00

    Labor ($ 16,00 per hour including employee benefits)

    Set – up labor 8 hours per production run 8 hours per production run 12 hours per production run 168 hours
    Run Labor .25 hours per unit . 50 hours per unit .40 hours per unit 9,725 hours
    Machine Hours .50 hour per unit .50 hours per unit .20 hours per unit 10,800 hours

    Manufacturing Overhead
    Receiving $20,000.00
    Materials handling $200,000.00
    Engineering $100,000.00
    Packing and shipping $60,000.00
    Maintenance $30,000.00
    Machine depreaciation (10 Year Life) $270,000.00
    Total $680,000.00

    I was thinking I take 680,000 and divide by machine hours but I am not sure. I have to come up with the actual costs for it all. \

    Can anyone help out?
    Thanks

  46. mansoor

    I have an assignment as case study on Activity Based Costing,

    plz if anyone can help contact me on my email:

    little_cute_79@live.com

  47. jeff

    Help me with these Question below, I try but not sure of the answers..please help me

    S Kumar Ltd manufactures water tanks for different sizes for use by industrial customers. The company uses a job costing system, in which manufacturing overhead is applied on the basis of direct labour dollar. The company’s budget for the current year included the following predictions:

    Budgeted total manufacturing overhead $441,000
    Budgeted Total direct labour hours 21, 000
    Budgeted hourly direct labour rate $20

    During June, the firm began two production jobs:
    • Job number T81, consisting of 87 water tanks (Standard size).
    • Job number C40, consisting of 100 water tanks (mini size).

    The events of June are described below:

    a) 1,000 square meters of rolled aluminium sheet metal were purchased for $6,000 on account.

    b) 400 kilograms of aluminium tubing were purchased on account for $5,500.

    c) The following requisitions were filed on 5 June:

    • Requisition number 112: 260 square meters of aluminium sheet metal (for job number C40) @ $5.60 per square meter.

    • Requisition number 113: 1,100 kilograms of aluminium sheet metal (for job T81) @ $9 per kilogram.

    • Requisition number 114: 10 liters of superb glue @ $15 per liter.
    All aluminuim used in production is treated as direct material. Superb glue is an indirect material.

    d) An analysis of labour time sheets revealed the following labour usage for June:
    • Direct labour: job number C40, 850 hours @ $20 per hour
    • Direct labour: job number T81, 950 hours @$20 per hour
    • Indirect labour: general factory clean up, $5,500
    • Indirect labour: factory supervision salaries $8,500

    e) Depreciation of the factory building and equipment during June amounted to $12,000.
    f) Rent paid in cash for warehouse space used during June was $1,330.
    g) Electricity costs incurred during June amounted to $2,400. The invoices for these costs were received, but only half of the bill was paid in June.
    h) June council rates and property taxes on the factory were paid in cash $2,370.
    22
    i) The insurance cost covering factory operations for the Month of June was $2,500. The insurance policy has been prepaid.
    j) The costs of salaries and on-costs for sales and administrative personnel paid in cash during June amounted to $8,500.
    k) Depreciation on administrative office equipment and space amounted to $4,500.
    l) Other selling and administrative expenses paid in cash during June amounted to $1,150.
    m) Job number C40 was completed during June.
    n) 75% of the water tanks in job number C40 were sold on account during June for $750 each.

    The 1 June balances in selected accounts are as follows: Cash $11,000
    Accounts receivable 20,000
    Prepaid insurance 7,500
    Raw material inventory 150,000
    Manufacturing supplies inventory 600
    Work in process inventory 89,000
    Finished goods inventory 223,000
    Accumulated depreciation: Buildings and Equipment 99,000
    Accounts payable 14,500
    Wages payable 8,500

    Requirements:

    1. Calculate the company’s predetermined overhead rate for the current year.

    2. Complete the job cost sheets for job number C40 (Round-off unit cost to the nearest cent and where necessary, show ALL relevant workings.

    3. Prepare journal entries to record the events of June. (Where appropriate, show ALL relevant workings. Ignore narrations.)

    4. Calculate the over-applied or under-applied overhead for June. Prepare a journal entry to close this balance in the cost of goods sold. (Show calculation for actual and applied overhead.)

    5. Prepare a schedule of cost of goods manufactured for June.

    6. Prepare a schedule of cost of goods sold for June.

    7. Prepare an income statement for June.

  48. Eveline

    Hi.if direct labour hourly rate is 5.6 and manufacturing overhead rate per direct labour hour is 10. Calculate manufacturing overhead

  49. fatima

    help me find out solution for this question that a company makes two products the greeks and the roman .greek takes 2 labour hour and roman 5 hours. company estimated that total overheads will be 50,000 and estimated that a total of 100,000 direct labour hours will be worked…
    what is What is the overhead cost per unit for Greeks and Romans respectively if overheads are absorbed on the basis of labour hours

  50. jeff

    Hi,

    Budgeted total manufacturing overhead $441,000
    Budgeted Total direct labour hours 21, 000
    Budgeted hourly direct labour rate $20

    what is the predetermined overhead rate?

  51. Nemai Raralevu

    Please sir/madam if you can Help me with these Question below, I try but not sure of the answers..please help me

    S Kumar Ltd manufactures water tanks for different sizes for use by industrial customers. The company uses a job costing system, in which manufacturing overhead is applied on the basis of direct labour dollar. The company’s budget for the current year included the following predictions:

    Budgeted total manufacturing overhead $441,000
    Budgeted Total direct labour hours 21, 000
    Budgeted hourly direct labour rate $20

    During June, the firm began two production jobs:
    • Job number T81, consisting of 87 water tanks (Standard size).
    • Job number C40, consisting of 100 water tanks (mini size).

    The events of June are described below:

    a) 1,000 square meters of rolled aluminium sheet metal were purchased for $6,000 on account.

    b) 400 kilograms of aluminium tubing were purchased on account for $5,500.

    c) The following requisitions were filed on 5 June:

    • Requisition number 112: 260 square meters of aluminium sheet metal (for job number C40) @ $5.60 per square meter.

    • Requisition number 113: 1,100 kilograms of aluminium sheet metal (for job T81) @ $9 per kilogram.

    • Requisition number 114: 10 liters of superb glue @ $15 per liter.
    All aluminuim used in production is treated as direct material. Superb glue is an indirect material.

    d) An analysis of labour time sheets revealed the following labour usage for June:
    • Direct labour: job number C40, 850 hours @ $20 per hour
    • Direct labour: job number T81, 950 hours @$20 per hour
    • Indirect labour: general factory clean up, $5,500
    • Indirect labour: factory supervision salaries $8,500

    e) Depreciation of the factory building and equipment during June amounted to $12,000.
    f) Rent paid in cash for warehouse space used during June was $1,330.
    g) Electricity costs incurred during June amounted to $2,400. The invoices for these costs were received, but only half of the bill was paid in June.
    h) June council rates and property taxes on the factory were paid in cash $2,370.
    22
    i) The insurance cost covering factory operations for the Month of June was $2,500. The insurance policy has been prepaid.
    j) The costs of salaries and on-costs for sales and administrative personnel paid in cash during June amounted to $8,500.
    k) Depreciation on administrative office equipment and space amounted to $4,500.
    l) Other selling and administrative expenses paid in cash during June amounted to $1,150.
    m) Job number C40 was completed during June.
    n) 75% of the water tanks in job number C40 were sold on account during June for $750 each.

    The 1 June balances in selected accounts are as follows: Cash $11,000
    Accounts receivable 20,000
    Prepaid insurance 7,500
    Raw material inventory 150,000
    Manufacturing supplies inventory 600
    Work in process inventory 89,000
    Finished goods inventory 223,000
    Accumulated depreciation: Buildings and Equipment 99,000
    Accounts payable 14,500
    Wages payable 8,500

    Requirements:

    1. Calculate the company’s predetermined overhead rate for the current year.

    2. Complete the job cost sheets for job number C40 (Round-off unit cost to the nearest cent and where necessary, show ALL relevant workings.

    3. Prepare journal entries to record the events of June. (Where appropriate, show ALL relevant workings. Ignore narrations.)

    4. Calculate the over-applied or under-applied overhead for June. Prepare a journal entry to close this balance in the cost of goods sold. (Show calculation for actual and applied overhead.)

    5. Prepare a schedule of cost of goods manufactured for June.

    6. Prepare a schedule of cost of goods sold for June.

    7. Prepare an income statement for June.

  52. Nemai Raralevu

    good fternoon sir/madam.could you please help me with the question below im really stuck and could not even start with my work:
    S Kumar Ltd manufactures water tanks for different sizes for use by industrial customers. The company uses a job costing system, in which manufacturing overhead is applied on the basis of direct labour dollar. The company’s budget for the current year included the following predictions:

    Budgeted total manufacturing overhead $441,000
    Budgeted Total direct labour hours 21, 000
    Budgeted hourly direct labour rate $20

    During June, the firm began two production jobs:
    • Job number T81, consisting of 87 water tanks (Standard size).
    • Job number C40, consisting of 100 water tanks (mini size).

    The events of June are described below:

    a) 1,000 square meters of rolled aluminium sheet metal were purchased for $6,000 on account.

    b) 400 kilograms of aluminium tubing were purchased on account for $5,500.

    c) The following requisitions were filed on 5 June:

    • Requisition number 112: 260 square meters of aluminium sheet metal (for job number C40) @ $5.60 per square meter.

    • Requisition number 113: 1,100 kilograms of aluminium sheet metal (for job T81) @ $9 per kilogram.

    • Requisition number 114: 10 liters of superb glue @ $15 per liter.
    All aluminuim used in production is treated as direct material. Superb glue is an indirect material.

    d) An analysis of labour time sheets revealed the following labour usage for June:
    • Direct labour: job number C40, 850 hours @ $20 per hour
    • Direct labour: job number T81, 950 hours @$20 per hour
    • Indirect labour: general factory clean up, $5,500
    • Indirect labour: factory supervision salaries $8,500

    e) Depreciation of the factory building and equipment during June amounted to $12,000.
    f) Rent paid in cash for warehouse space used during June was $1,330.
    g) Electricity costs incurred during June amounted to $2,400. The invoices for these costs were received, but only half of the bill was paid in June.
    h) June council rates and property taxes on the factory were paid in cash $2,370.
    22
    i) The insurance cost covering factory operations for the Month of June was $2,500. The insurance policy has been prepaid.
    j) The costs of salaries and on-costs for sales and administrative personnel paid in cash during June amounted to $8,500.
    k) Depreciation on administrative office equipment and space amounted to $4,500.
    l) Other selling and administrative expenses paid in cash during June amounted to $1,150.
    m) Job number C40 was completed during June.
    n) 75% of the water tanks in job number C40 were sold on account during June for $750 each.

    The 1 June balances in selected accounts are as follows: Cash $11,000
    Accounts receivable 20,000
    Prepaid insurance 7,500
    Raw material inventory 150,000
    Manufacturing supplies inventory 600
    Work in process inventory 89,000
    Finished goods inventory 223,000
    Accumulated depreciation: Buildings and Equipment 99,000
    Accounts payable 14,500
    Wages payable 8,500

    Requirements:

    1. Calculate the company’s predetermined overhead rate for the current year.

    2. Complete the job cost sheets for job number C40 (Round-off unit cost to the nearest cent and where necessary, show ALL relevant workings.

    3. Prepare journal entries to record the events of June. (Where appropriate, show ALL relevant workings. Ignore narrations.)

    4. Calculate the over-applied or under-applied overhead for June. Prepare a journal entry to close this balance in the cost of goods sold. (Show calculation for actual and applied overhead.)

    5. Prepare a schedule of cost of goods manufactured for June.

    6. Prepare a schedule of cost of goods sold for June.

    7. Prepare an income statement for June.

  53. Mano Rana

    Plzz tell me..
    Pre-determined overhead rate and the possible bases..

  54. Karti

    Appreciate if i can get some help with the question below I am really stuck with this.

    Dina Inc. management has estimated the factory overhead cost as $1090 variable cost and $1430 fixed cost to make 100 units using 500 machine hours.

    Required:
    1. Using the above information, derive the cost equation in the form of Y = a + bx.
    2. Predict the cost with 550 machine hours.
    3. Compare the above method of cost estimation with engineering approach, with respect to the costs and benefits of the two approaches.

    Part B
    You are provided with the cost data from twelve observations of electricity, a semi-variable cost.
    Volume Electricity cost
    (Machine hours)
    January 35000 $65,000
    February 28000 $59,800
    March 34000 $64,100
    April 42000 $67,800
    May 37000 $70,000
    June 30000 $61,300
    July 25000 $57,800
    August 22000 $55,600
    September 20000 $54,200
    October 37000 $71,000
    November 45000 $72,000
    December 41000 $65,000
    TOTAL 396000 $763,600

    Required:
    1. Use scatter graph to estimate the cost equation (Y = a + bx).
    2. Estimate the cost equation using high low method
    3. Estimate the cost equation using regression analysis.
    4. Predict the cost of electricity (using all the three methods 1-3) for the month in which 38000 machine hours are used.

  55. saadia

    hi… no one seems to have answered in a long time, but i am going to take my chances because i dont understand this at all and i need help….

    3. Maddow Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Patterson High School Science Olympiad Jacket job.

    Company
    Direct materials $25,000
    Direct manufacturing labor $5,000
    Manufacturing overhead costs $20,000
    Machine-hours 50,000 mh

    Patterson High School Job
    Direct materials $500
    Direct manufacturing labor $100
    Manufacturing overhead costs $0
    Machine-hours 800 mh

    Required:
    a. For Maddow Manufacturing, determine the annual manufacturing overhead cost-allocation rate.
    b. Determine the amount of manufacturing overhead costs allocated to the Patterson High School job.
    c. Determine the estimated total manufacturing costs for the Patterson High School job.

    here is the Answer i got: is this correct?
    a. For Maddow Manufacturing, determine the annual manufacturing overhead cost-allocation rate. $1.00 Per Direct Manufacturing labor-hour

    b. Determine the amount of manufacturing overhead costs allocated to the Patterson High School job. $800

    c. Determine the estimated total manufacturing costs for the Patterson High School job. $1400

    I am not sure if i should be adding all the costs above (minus the mh) to get Actual Annual Manufacturing Overhead Costs, in order calculate Annual Manufacturing Over Head Rate. or if i should just be using Manufacturing overhead costs ($20,000)…. please im really trying and my professor is basically leaving us out to try to only get the right answer after we submit and possibly fail our assignments…

  56. Jonathan

    Hi! Good Day Accounting Management! I would like to ask how to determine the predetermine overhead rate for each departments. The departments are Milling and Assembly.
    Milling Assembly
    Direct Labor Hours 8,000 75,000
    Machine hours 60,000 3,000
    Manufacturing Overhead Cost $510,000 $800,000
    Direct Labor cost &72,000 $640,000

    Thank you in advance!

  57. Claudia

    Estimated Manufacturing overhead cost = $800 000; and estimated direct materials to be used in production = $500 000

    The inventory accounts @ beginning and end of year where:
    Raw Materials: Beginning = $20 000 End = $80 000
    WIP: Beginning = $150 000 End = $70 000
    Finished Goods: Beginning = $260 000 End = $400 000

    QUESTION: Calculate predetermined overhead rate for the year:

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