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: Direct materials $ 10 , 000 Direct labour 30 , 000 Sales commissions 40 , 000 Salary of production supervis or 20 , 000 In direct materials 4 , 000 Advertising expense 8 , 000 Rent on factory equipment 10 , 000 \begin{array} { l c } ext { Direct materials } & \$ 10,000 \ ext { Direct labour } & 30,000 \ ext { Sales commissions } & 40,000 \ ext { Salary of production supervis or } & 20,000 \ ext { In direct materials } & 4,000 \ ext { Advertising expense } & 8,000 \ ext { Rent on factory equipment } & 10,000\end{array} Direct materials Direct labour Sales commissions Salary of production supervis or In direct materials Advertising expense Rent on factory equipment $10 , 000 30 , 000 40 , 000 20 , 000 4 , 000 8 , 000 10 , 000 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:    Direct materials  $ 10 , 000  Direct labour  30 , 000  Sales commissions  40 , 000  Salary of production supervis or  20 , 000  In direct materials  4 , 000  Advertising expense  8 , 000  Rent on factory equipment  10 , 000 \begin{array} { l c } 	ext { Direct materials }  &  \$ 10,000 \	ext { Direct labour }  &  30,000 \	ext { Sales commissions }  &  40,000 \	ext { Salary of production supervis or }  &  20,000 \	ext { In direct materials }  &  4,000 \	ext { Advertising expense }  &  8,000 \	ext { Rent on factory equipment }  &  10,000\end{array}  Direct materials   Direct labour   Sales commissions   Salary of production supervis or   In direct materials   Advertising expense   Rent on factory equipment  ​ $10 , 000 30 , 000 40 , 000 20 , 000 4 , 000 8 , 000 10 , 000 ​   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.

Emily Mancilla · Accepted Answer

Final Answer : D, Explanation :  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.

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