Wheeler’s Bike Company manufactures custom racing bicycles. The company uses a job order cost system to determine the cost of each bike. Estimated costs and expenses for the coming year follow:

Bike parts $ 350,000
Factory machinery depreciation 55,000
Factory supervisor salaries 140,000
Factory direct labor 300,000
Factory supplies 7,500
Factory property tax 37,500
Advertising cost 14,500
Administrative salaries 80,000
Administrative-related depreciation 16,000
Total expected costs $ 1,000,500
Required:
Calculate the predetermined overhead rate per direct labor hour if the average direct labor rate is $15 per hour.
Determine the amount of applied overhead if 18,500 actual hours are worked in the upcoming year.

Overheads are expenses or costs incurred by Wheeler’s Bike Company in the manufacturing process which cannot be traced to the finished goods, which are factory machinery depreciation, factory supplies, factory supervisor salaries and factory property tax

Total factory overheads= factory machinery depreciation +factory supplies+ factory supervisor salaries+ factory property tax

Total factory overheads=$55,000+$140,000+$7,500+$37,500

Total factory overheads=$240,000

predetermined overhead rate per direct labor hour=total factory overheads/total labor hours

total labor hours=Factory direct labor/direct labor rate

total labor hours=$300,000/$15=20,000 hours

predetermined overhead rate per direct labor hour=$240,000/20,000

predetermined overhead rate per direct labor hour=$12.00

amount of applied overhead for 18,500 actual hours=18,500*$12

amount of applied overhead for 18,500 actual hours=$222,000

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