Question

Lilium Inc., an automobile company, estimates a total factory overhead cost of $1,500,000 for the year and an activity base of 200,000 direct labor hours. If the actual labor hours are 250,000, the applied factory overhead is:

Answer 1

The applied factory overhead cost is $1,875,000

Explanation:

Overhead cost = $1,500,000 at activity base of 200,000

We assume that the overhead is directly proportional to the activity base;

The cost per direct labor = $1,500,000/200,000 = $7.5

Therefore at actual labor hours of 250,000, the factory overhead cost is therefore = $7.5 × 250000 = $1,875,000.