Jimbob Co.has the following estimated costs for the next year: The company estimates that 20,000 labour hours will be worked and 1,000 machine hours incurred during the year.If overhead is applied on the basis of direct labour costs,the overhead rate will be:
A) 100%.
B) 200%.
C) 225%.
D) 400%.

Question

Jimbob Co.has the following estimated costs for the next year:  The company estimates that 20,000 labour hours will be worked and 1,000 machine hours incurred during the year.If overhead is applied on the basis of direct labour costs,the overhead rate will be:
A) 100%. 
B) 200%. 
C) 225%. 
D) 400%.

Quizplus · Accepted Answer

To calculate the overhead rate, we need to divide the estimated overhead costs by the estimated direct labour costs:
Estimated overhead costs / Estimated direct labour costs = Overhead rate

Using the information given, we have:

$22,500 + $10,000 + $7,500 = $40,000 (total estimated overhead costs)
$40,000 / $17,778 ($15,000 + $2,778) = 2.25

Therefore, the overhead rate when applied on the basis of direct labour costs will be 225%.

Jimbob CoHas the Following Estimated Costs for the Next Year