Problem 161A Part Level Submission Lott Company uses a job o

Problem 16-1A (Part Level Submission) Lott Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1, 2017, Job No. 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $ 20,000, direct labor $ 12,000, and manufacturing overhead $ 16,000 . As of January 1, Job No. 49 had been completed at a cost of $90,000 and was part of finished goods inventory. There was a $15,000 balance in the Raw Materials Inventory account. During the month of January, Lott Company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the month for 122,000 and $ 158,000, respectively. The following additional events occurred during the month 1. 2. 3. Purchased additional raw materials of $ 90,000 on account. Incurred factory labor costs of $ 70,000. Of this amount $ 16,000 related to employer payroll taxes Incurred manufacturing overhead costs as follows: indirect materials 17,000 ; indirect labor 20,000 ; depreciation expense on equipment 12,000 and various other manufacturing overhead costs on account $16,000 Assigned direct materials and direct labor to jobs as follows 4. Job No 50 51 52 Direct Materials Direct Labor $10,000 39,000 30,000 5,000 25,000 20,000 Calculate the predetermined overhead rate for 2017, assuming Lott Company estimates total manufacturing overhead costs of $840,000, direct labor costs of $700,000, and direct labor hours of 20,000 for the year. (Round answer to the nearest whole percent, e.g. 25%.) Predetermined overhead rate

Solution

Predetermine overhead rate = Estimated manufacturing overhead*100/Estimated labour cost

= 840000*100/700000

Predetermine overhead rate = 120% of direct labour cost