Question

Scarlet Company is a job-order firm that follows a normal costing approach.

Consider the following information regarding Scarlet Company:

Estimated overhead costs $7,500
Estimated direct labor hours 1,500 hours
Hours worked for Job 10 45 hours

For Job 10, with a total of 45 hours worked, the amount of overhead cost posted is:
a. $225.
b. $250.
c. $235.
d. $215.

Answer 1

To allocate overhead costs to Job 10, calculate the predetermined overhead rate by dividing the estimated overhead costs by the estimated direct labor hours, resulting in a rate of $5 per labor hour. Then, multiply this rate by the hours worked for Job 10, leading to an overhead cost of $225.

Step-by-step explanation:

The student's question deals with how to allocate overhead costs to a particular job in a job-order costing system using a normal costing approach. To determine the overhead cost for Job 10, which has 45 hours worked, we need to calculate the predetermined overhead rate (POR). This rate is calculated based on the estimated overhead costs and estimated direct labor hours provided by Scarlet Company.

First, we calculate the POR by dividing the estimated overhead costs by the estimated direct labor hours:

POR = Estimated Overhead Costs / Estimated Direct Labor Hours

POR = $7,500 / 1,500 hours

POR = $5 per direct labor hour

Next, to find the overhead cost posted to Job 10, we multiply the POR by the number of hours worked on Job 10:

Overhead Cost for Job 10 = POR x Hours Worked for Job 10

Overhead Cost for Job 10 = $5/hour x 45 hours

Overhead Cost for Job 10 = $225

Therefore, the correct answer is (a) $225.