Question

Grey, Inc., uses a predetermined rate to apply overhead. At the beginning of the year, Grey estimated its overhead costs at $220,000, direct labor hours at 55,000, and machine hours at 20,000. Actual overhead costs incurred were $233,250, actual direct labor hours were 62,000, and actual machine hours were 15,000.

If the predetermined overhead rate is based on machine hours, what is the total amount credited to the factory overhead account for the year for Grey?

a. $215,000
b. $165,000
c. $240,000
d. $135,000

Answer 1

The answer is b.$165,000

Step-by-step explanation:

Please find the below for detail explanations and calculations:

As Grey's predetermined overhead rate is based on machine hours, it is calculated as:

Predetermined overhead rate = Estimated overhead costs / Estimated machine hours = 220,000 / 20,000 = $11 per a machine hour.

The amount credited to the factory overhead account for the year for Grey is calculated as:

Overhead cost = Predetermined overhead rate x Actual machine hour = 11 x 15,000 = $165,000.

Thus, the answer is b.$165,000