Paulson Company Uses a Predetermined Overhead Rate Based on Machine

question 60

Multiple Choice

Paulson Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year:
Paulson estimated that 40,000 direct Labour hours and 20,000 machine hours would be worked during the year.
The predetermined overhead rate per machine hour will be:
$\begin{array}{lrr} \text { Direct materials} &£ 25,000\\ \text {Direct Labour } &22,000\\ \text { Advertising expense. } &15,000\\ \text { Rent on factory building. } &13,500\\ \text { Depreciation on factory equipment. } &6,500\\ \text {Indirect materials. } &10,000\\ \text { Sales salaries. } &28,000\\ \text {Insurance on factory equipment. } &12,000\\\end{array}$

• A)£1.60.
• B)£2.10.
• C)£1.00.
• D)£1.05.

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Definitions:

Gross Profit

Gross profit is the difference between revenue and the cost of goods sold (COGS), representing the profit a company makes after deducting the costs directly associated with producing its goods or services.

Cost of Goods Sold

An accounting term for the direct costs attributable to the production of the goods sold by a company.

Service Business

A type of business that primarily offers intangible goods or services to consumers, such as consulting, legal advice, and maintenance services.

Merchandising Business

A type of business that makes profit by buying goods at a wholesale price and selling them at a retail price, primarily dealing in goods rather than services.