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) $300
c) $375
d) $400

Answer 1

The correct option is A). The overhead cost for Job 10 at Scarlet Company is $225, calculated by multiplying the predetermined overhead rate of $5 per labor hour by the 45 hours worked for Job 10.

Step-by-step explanation:

To calculate the overhead cost for Job 10 at Scarlet Company, which practices normal costing, we first need to establish the predetermined overhead rate (POR). This is done by dividing the estimated overhead costs by the estimated direct labor hours. In this case:

POR = Estimated Overhead Costs / Estimated Direct Labor Hours

POR = $7,500 / 1,500 hours = $5 per labor hour.

With the POR known, we can apply it to the hours worked for Job 10 to determine the overhead cost posted to this job:

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

Overhead Cost for Job 10 = 45 hours × $5 = $225.

Therefore, the correct amount of overhead cost posted for Job 10 is $225.