Question

Tombert Decorating uses a job order cost system to collect the costs of its interior decorating business. Each client's consultation is treated as a separate job. Overhead is applied to each job based on the number of decorator hours incurred. Listed below are data for the current year.

Estimated overhead $1,010,000
Actual overhead $989,800
Estimated decorator hours 40,000
Actual decorator hours 38,900

The company uses Operating Overhead in place of Manufacturing Overhead.

Answer 1

In job order costing, overhead is applied to each job based on the number of decorator hours incurred. The predetermined overhead rate is calculated by dividing the estimated overhead by the estimated decorator hours. The applied overhead cost for a specific job is calculated by multiplying the predetermined overhead rate by the actual decorator hours for that job.

Step-by-step explanation:

In job order costing system, overhead is applied to each job based on the number of decorator hours incurred. To calculate the predetermined overhead rate, we divide the estimated overhead by the estimated decorator hours.

Predetermined overhead rate = Estimated overhead / Estimated decorator hours

In this case, the estimated overhead is $1,010,000 and the estimated decorator hours are 40,000. Therefore, the predetermined overhead rate is $1,010,000 / 40,000 = $25.25 per decorator hour.

To calculate the applied overhead cost for a specific job, we multiply the predetermined overhead rate by the actual decorator hours for that job.

Applied overhead cost = Predetermined overhead rate x Actual decorator hours

In this case, the actual decorator hours are 38,900. Therefore, the applied overhead cost is $25.25 x 38,900 = $981,925.