Question

A company bases its predetermined overhead rate on direct labor cost. For next year, total factory overhead cost is estimated at $300,000 and total direct labor cost is estimated at $240,000. For the first month of the year, actual factory overhead cost was $20,000 and actual direct labor cost was $15,000. What amount of overhead will be allocated/applied/assigned to production this month?

Answer 1

Allocated MOH= $18,750

Step-by-step explanation:

Giving the following information:

The estimated total factory overhead= $300,000

Total estimated direct labor cost= $240,000.

The actual direct labor cost was $15,000.

First, we need to calculate the estimated overhead rate based on direct labor cost. Then, we can allocate overhead.

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= 300,000/240,000= $1.25 per direct labor dollar

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 1.25*15,000

Allocated MOH= $18,750