Question

Mesa Corp. allocates overhead to production on the basis of direct labor costs Mesa's total estimated overhead is $450,000 and estimated direct labor is $180,000. Determine the amount of overhead to allocated to finished goods inventory if there is $20,000 of total direct labor cost in the cost in the jobs in the finished goods inventory. A. $8,000 B. $20,000 C. $70,000 D. $50,000 E. $90,000

Answer 1

The correct option is D. $50,000.

Step-by-step explanation:

This can be calculated using the following formula:

Overhead allocated to finished goods inventory = (Total direct labor cost in the cost in the jobs in the finished goods inventory / Estimated direct labor) * Total estimated overhead ................. (1)

Where;

Total direct labor cost in the cost in the jobs in the finished goods inventory = $20,000

Estimated direct labor = $180,000

Total estimated overhead = $450,000

Substituting the values into equation (1), we have:

Overhead allocated to finished goods inventory = ($20,000 / $180,000) * $450,000 = 0.111111111111111 * $450,000 = $50,000

Therefore, the correct option is D. $50,000.