Question

MNO Corporation uses a job-order costing system with a predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on the following data: Total estimated direct labor-hours 50,000 Total estimated fixed manufacturing overhead cost $ 285,000 Estimated variable manufacturing overhead per direct labor-hour $ 3.80 Recently, Job P123 was completed with the following characteristics: Total actual direct labor-hours 20 Direct materials $ 710 Direct labor cost $ 500 The amount of overhead applied to Job P123 is closest to: (Round your intermediate calculations to 2 decimal places.)

Answer 1

Overhead applied to JOB P123 = $190

Rate of overhead

Predetermined = $5.70

Variable = $3.80

Step-by-step explanation:

Overhead rate is the rate determined to charge the fixed cost of overheads, it is not related to directly attributed variable costs.

As in the given instance,

Fixed Manufacturing Overheads = $285,000

Total estimated working hours = 50,000

Also provided variable manufacturing overhead = $3.80

Now, while calculating the predetermined overhead rate, the variable overhead rate which is actually traceable, and related to each extra unit produced is not included in predetermined overhead rate.

Therefore, rate shall be:

$285,000/50,000 = $5.70

Job P123 overheads shall be:

Variable = 20
`*` $3.80 = $76

Fixed = 20
`*` $5.70 = $114

Therefore, total overheads shall be:

$190