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Manufacturing Overhead Rate and Operating Profits

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Techniques, Inc. uses a predetermined manufacturing overhead rate based on direct labor hours to apply its indirect product costs to jobs. The following information has been collected for the previous year:

Direct materials $150,000
Direct labor 200,000
Sales commissions 100,000
Indirect labor 50,000
Rent on office equipment 25,000
Depreciation factory building 75,000
Utilities factory 125,000

Techniques used 25,000 direct labor hours and 50,000 machine hours during the previous year. What is the predetermined overhead rate per direct labor hour?

$24.00
$15.00
$14.00
$10.00

The MNK Company has gathered the following information for a unit of its most popular product:

Direct materials $6
Direct labor 3
Overhead (40% variable) 5
Cost to manufacture 14
Desired markup (50%) 7
Target selling price 21

The above cost information is based on 4,000 units. A foreign distributor has offered to buy 1,000 units at a price of $16 per unit. This special order would not disturb regular sales. Variable shipping and other selling expenses would be $1 per unit for the special order. If the special order is accepted, MNK's operating profits will increase by:

$1,000
$1,600
$2,000
$4,000

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This solution helps with problems regarding manufacturing overhead rate and operating profits.

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1. Predetermined overhead rate = Estimated overhead / estimated direct labor hours
Estimated overhead = Indirect labor 50,000 + depreciation of factory building 75,000 + utilities factory ...

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