Kelsh Company uses a predetermined overhead rate based on machine hours to appl? manufacturing overhead to jobs. The company has provided the following estimated costs for next year: $$\begin{array} { l c }
\text { Direct materials } & \$ 10,000 \
\text { Direct labour } & 30,000 \
\text { Sales commissions } & 40,000 \
\text { Salary of production supervis or } & 20,000 \
\text { In direct materials } & 4,000 \
\text { Advertising expense } & 8,000 \
\text { Rent on factory equipment } & 10,000
\end{array}$$ Kelsh estimates that 5,000 direct labour hours and 10,000 machine hours will be worked during the year. The predetermined overhead rate per hour will be:
A)$6.40.
B)$8.20.
C)$6.80.
D)$3.40.

Question

Kelsh Company uses a predetermined overhead rate based on machine hours to appl? manufacturing overhead to jobs. The company has provided the following estimated costs for next year: $$\begin{array} { l c } 
\text { Direct materials } & \$ 10,000 \
\text { Direct labour } & 30,000 \
\text { Sales commissions } & 40,000 \
\text { Salary of production supervis or } & 20,000 \
\text { In direct materials } & 4,000 \
\text { Advertising expense } & 8,000 \
\text { Rent on factory equipment } & 10,000
\end{array}$$ Kelsh estimates that 5,000 direct labour hours and 10,000 machine hours will be worked during the year. The predetermined overhead rate per hour will be:
A)$6.40.
B)$8.20.
C)$6.80.
D)$3.40.

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the total estimated manufacturing overhead costs by the estimated total machine hours. Manufacturing overhead includes indirect materials, salary of production supervisor, and rent on factory equipment. So, the total overhead is $4,000 + $20,000 + $10,000 = $34,000. Dividing $34,000 by 10,000 machine hours gives a rate of $3.40 per machine hour.

Kelsh Company Uses a Predetermined Overhead Rate Based on Machine