Sapphire Company Example - Part 2 To begin our illustration, let's assume that Sapphire Company has a predetermined overhead rate of $25 per direct labor-hour that was based on a cost formula that estimated $100,000 in manufacturing overhead cost for an estimated allocation base of 4,000 direct labor-hours. During January, the company completed the following transactions: a. Purchased raw materials on account, $80,000. b. Raw materials used in production, $78,000 (\$70,000 was direct materials and $8,000 was indirect materials). c. Paid $135,000 of salaries and wages in cash ($68,000 was direct labor, $45,000 was indirect labor, and $22,000 was related to employees responsible for selling and administration)