Lueckenhoff Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $497,000, variable manufacturing overhead of $2.40 per direct labor-hour, and 70,000 direct labor-hours. The company has provided the following data concerning Job T498 which was recently completed: The predetermined overhead rate is closest to:

A) $11.90 per direct labor-hour
B) $7.10 per direct labor-hour
C) $9.50 per direct labor-hour
D) $2.40 per direct labor-hour

Question

Lueckenhoff Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $497,000, variable manufacturing overhead of $2.40 per direct labor-hour, and 70,000 direct labor-hours. The company has provided the following data concerning Job T498 which was recently completed:

The predetermined overhead rate is closest to:

A) $11.90 per direct labor-hour
B) $7.10 per direct labor-hour
C) $9.50 per direct labor-hour
D) $2.40 per direct labor-hour

Trever Desiree · Accepted Answer

Final Answer : C, Explanation :  The predetermined overhead rate is calculated as follows:Total overhead cost = fixed overhead cost + (variable overhead rate x direct labor-hours)Total overhead cost = $497,000 + ($2.40 x 70,000)Total overhead cost = $497,000 + $168,000Total overhead cost = $665,000Predetermined overhead rate = total overhead cost / direct labor-hoursPredetermined overhead rate = $665,000 / 70,000Predetermined overhead rate = $9.50 per direct labor-hourTherefore, the closest predetermined overhead rate is $9.50 per direct labor-hour, which is option C.

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