Question

Ridgeway Corporation uses direct labor hours to allocate overhead to Work-in-Process. The company's budgeted overhead is $420,000 and it expects to produce 40,000 vases this period. It takes 2 direct labor hours to produce one vase. If 60,000 direct labor hours are actually worked during the period, how much overhead should be allocated to the Work-in-Process inventory?

Answer 1

$315,000

Step-by-step explanation:

Overhead estimate per vase = Budgeted overhead/ Budget vases

= $420,000/ 40,000 vases

= $10.5 per vase

Number of vases produced = Total direct labor hours/ Labor hours per unit

= 60,000/ 2

= 30,000 vases

Overhead costs = Overhead cost per unit X number of vases

= $10.5 X 30,000

= $315,000

Therefore, overhead cost to be allocated to Work-in- Progress inventory is $315,000.