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 be allocated to finished goods inventory if there is $20,000 of total direct labor cost in the jobs in the finished goods inventory.
A)$8,000.
B)$20,000.
C)$70,000.
D)$50,000.
E)$90,000.

Question

Quizplus · Accepted Answer

First, we need to calculate the overhead rate:

Overhead rate = Total estimated overhead / Estimated direct labor
Overhead rate = $450,000 / $180,000
Overhead rate = 2.5

This means that for every $1 of direct labor, $2.5 of overhead will be allocated.

To determine the overhead allocated to finished goods inventory, we multiply the direct labor cost in finished goods inventory by the overhead rate:

Overhead allocated to finished goods inventory = Direct labor cost in finished goods inventory x Overhead rate
Overhead allocated to finished goods inventory = $20,000 x 2.5
Overhead allocated to finished goods inventory = $50,000

Therefore, the answer is D) $50,000.

Mesa CorpAllocates Overhead to Production on the Basis of Direct Labor