Question

Smith Fabricating uses job costing and applies overhead using a normal costing system and uses direct labour cost as the allocation base. This period's estimated overhead cost is $100,000 and estimated direct labour cost of $50,000 and 2,500 direct labour hours. What is the overhead allocation rate?

Answer 1

Estimated manufacturing overhead rate= $40 per direct labor hour

Step-by-step explanation:

Giving the following information:

This period's estimated overhead cost is $100,000 and an estimated direct labor cost of $50,000 and 2,500 direct labor hours.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 100,000/2,500= $40 per direct labor hour