Question

Baldwin Printing Company uses a job order cost system and applies overhead based on machine hours. A total of 150,000 machine hours have been budgeted for the year. During the year, an order for 1,000 units was completed and incurred the following:

Direct material costs $1,000
Direct labor costs $1,500
Actual overhead $1,980
Machine hours 450
The accountant computed the inventory cost of this order to be $4.30 per unit. The annual budgeted overhead in dollars was:
a.$577,500.
b.$600,000.
c.$645,000.
d.$660,000.

Answer 1

By calculating the overhead rate per machine hour from the job order's cost and applying this rate to the total budgeted machine hours for the year, the annual budgeted overhead in dollars is found to be $600,000.

Step-by-step explanation:

To find the annual budgeted overhead in dollars, we need to determine the overhead rate that was applied to the job order and then use this rate to calculate the total budgeted overhead for the year.

According to the information, the inventory cost per unit was $4.30, and the order was for 1,000 units, so the total cost is 1,000 units × $4.30/unit = $4,300. This total cost includes direct materials, direct labor, and applied overhead.

The direct materials and labor for the order are given as $1,000 and $1,500, respectively. Hence, the applied overhead can be calculated by subtracting these amounts from the total cost ($4,300 - $1,000 - $1,500 = $1,800).

Given that the machine hours for this job are 450, the overhead rate per machine hour is $1,800 ÷ 450 machine hours = $4 per machine hour.

Now that we have the overhead rate per machine hour, we can calculate the annual budgeted overhead by multiplying this rate by the total budgeted machine hours for the year: $4/machine hour × 150,000 machine hours = $600,000. Thus, option b is the correct answer.