pot Realtors a real estate consulting firm specializes in ad

pot Realtors, a real estate consulting firm, specializes in advising companies on potential new plant sites. The company uses a job order costing system with a edetermined overhead allocation rate, computed as a percentage of direct labor costs. At the beginning of 2016, managing partner Mathew Root prepared the llowing budget for the year EB (Click the icon to view the prepared budget.) ones Manufacturing, Inc. is inviting several consultants to bid for work. Matthew Root wants to submit abor hours Data Table Read the requirements Estimated direct labor hours 20,800 Estimated direct labor costs cost rate 20,800 ha - 125 par hoict labor hours (orofessionalb) 2,600,000 Direct labor costs (professionals) Office rent Support staff salaries Ubilities 2,600,000 350,000 760,000 450,000 Now compute Root Realtors\' (b) predetermined overhead allocation rate Predetermined ove allocation Print Done Chonee tom any list or enter any number in the input fields and then dlick Check Answer

Solution

Direct expenses are directly related to product or services (output). Indirect expenses are not directly related to product or services but important for production. These are treated as overhead expenses. These can be fixed or variable.

Predetermined overhead rate can be calculated using machine hours or labor hours.

Factory related expenses only should be considered in calculation of predetermined overhead rate.

Seeling or admistrative overheads are no need to be considered. Hence, ignore office rent (admistrative overhead).

Predetermined overhead rate = Total overhead cost/No. of direct labor hours

= ( Support staff salaries + Utilities)/ No. of direct labor hours

= ($760,000 + $ 450,000)/$20,800

= $1210,000/20,800

=$ 58.17

Therefore, predetermined overhead rate is $58.17