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

Quizplus · Accepted Answer

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 + $168,000
Total overhead cost = $665,000

Predetermined overhead rate = total overhead cost / direct labor-hours
Predetermined overhead rate = $665,000 / 70,000
Predetermined overhead rate = $9.50 per direct labor-hour

Therefore, the closest predetermined overhead rate is $9.50 per direct labor-hour, which is option C.

Lueckenhoff Corporation Uses a Job-Order Costing System with a Single