Question

LaFlame Corporation uses a job order costing system with a single plantwide predetermined overhead rate based on direct labor hours. The company’s predetermined overhead rate for the current year was based on the following data:

Total fixed manufacturing overhead	$ 360,000
Variable manufacturing overhead per direct labor hour	$ 2.80
Total direct labor hours	50,000

How much overhead did LaFlame apply to Job 123 if 500 direct labor hours were used on the job?

	a.	$140,000
	b.	$5,000
	c.	$1,400
	d.	$3,600

Answer 1

b) $5000

Explanation:

Estimated total manufacturing overhead cost = Estimated total fixed manufacturing overhead cost + (Estimated variable overhead cost per unit of the allocation base × Estimated total amount of the allocation base)

= $360,000 + ($2.80 per direct labor-hour × 50,000 direct labor-hours) = $360,000 + $140,000 = $500,000

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base

= $500,000 ÷ 50,000 direct labor-hours

= $10.00 per direct labor hour

Now, overhead assigned to job 123 = $10.00 x 500 hours = $5000