Question

Ramon, Inc. thinks machine hours is the best activity base for its manufacturing overhead. The estimate of annual overhead costs for its jobs was $2,050,000. The company used 1,000 hours of processing on Job No. B18 during the period and incurred overhead costs totaling $2,100,000. The budgeted machine hours for the year totaled 20,000. How much overhead should be applied to Job No. B18? A. $2,050 B. $102,500 C. $105,000 D. $2,100

Answer 1

B. $102,500

Step-by-step explanation:

Usually, overheads are applied using predetermined overhead rate. It is calculated using budgeted overhead and budgeted activity on which overheads are applied.

Predetermined overhead rate

= Budgeted overhead / Budgeted machine hours

= $2,050,000 / 20,000

= $102.5 per machine hours

Therefore,

Overheads applied

= Predetermined overhead rate × Actual machine hours

= $102.5 × 1,000

= $102,500