Question

Yancey Productions is a film studio that uses a job-order costing system. The company’s direct materials consist of items such as costumes and props. Its direct labor includes each film’s actors, directors, and extras. The company’s overhead costs include items such as utilities, depreciation of equipment, senior management salaries, and wages of maintenance workers. Yancey applies its overhead cost to films based on direct labor-dollars. At the beginning of the year, Yancey made the following estimates:
Direct labor-dollars to support all productions $8,370,000
Fixed overhead cost $5,022,000
Variable overhead cost per direct labor-dollar $0.07

Required:

Compute the predetermined overhead rate.

Answer 1

Answer:

$0.67 per direct labor-dollar

Explanation:

Given that,

Direct labor-dollars to support all productions = $8,370,000

Fixed overhead cost = $5,022,000

Variable overhead cost per direct labor-dollar = $0.07

Predetermined overhead rate:

$= Variable\ overhead\ cost\ per\ DL\ dollar+\frac{Fixed\ overhead\ cost}{Direct\ labor-dollars}$

$=0.07+\frac{5,022,000}{8,370,000}$

      = 0.07 + 0.6

      = $0.67 per direct labor-dollar