Savannah Factory applies manufacturing overhead based on direct labor cost.Information concerning manufacturing overhead and labor for August follows: $\begin{array}{lrr}&\text { Estimated }&\text { Actual }\
\text { Overhead cost } & \$ 174,000 & \$ 171,100 \
\text { Direct labor hours } & 5,800 & 5,900 \
\text { Direct labor cost } & \$ 87,000 & \$ 89,975
\end{array}$ How much overhead should be applied in total during August?

Question

Quizplus · Accepted Answer

The overhead application rate is based on the estimated overhead cost divided by the estimated direct labor cost, which is $174,000 / $87,000 = 2. This means for every dollar of direct labor cost, $2 of manufacturing overhead is applied. The actual direct labor cost for August is $89,975, so the total overhead applied is $89,975 * 2 = $179,950.

Savannah Factory Applies Manufacturing Overhead Based on Direct Labor Cost