At the beginning of the current year CR Company estimated the following costs:
$\begin{array} { l r }
\text { Direct materials } & \$ 4,000 \
\text { Direct labour } & \$ 20,000 \
\text { Rent on factory building } & \$ 15,000 \
\text { Sales salaries } & \$ 25,000 \
\text { Depreciation on factory equipment } & \$ 8,000 \
\text { Indirect labour } & \$ 10,000 \
\text { Production supervisor's salary } & \$ 12,000
\end{array}$
CR Company estimated 20,000 labour hours to be worked during the year.Actual labour hours worked were 22,000 hours.If overhead is applied on the basis of direct labour hours,what will be the overhead applied for the year?
A) $55,000.
B) $49,500.
C) $103,400.
D) $75,900.

Question

At the beginning of the current year CR Company estimated the following costs: 
$\begin{array} { l r } 
\text { Direct materials } & \$ 4,000 \
\text { Direct labour } & \$ 20,000 \
\text { Rent on factory building } & \$ 15,000 \
\text { Sales salaries } & \$ 25,000 \
\text { Depreciation on factory equipment } & \$ 8,000 \
\text { Indirect labour } & \$ 10,000 \
\text { Production supervisor's salary } & \$ 12,000
\end{array}$
CR Company estimated 20,000 labour hours to be worked during the year.Actual labour hours worked were 22,000 hours.If overhead is applied on the basis of direct labour hours,what will be the overhead applied for the year?
A) $55,000.
B) $49,500.
C) $103,400.
D) $75,900.

Quizplus · Accepted Answer

Overhead is applied on the basis of direct labor hours, so we need to calculate the overhead rate per direct labor hour.

Overhead rate = Estimated overhead costs / Estimated direct labor hours 
Overhead rate = ($15,000 + $25,000 + $8,000 + $10,000 + $12,000) / 20,000 
Overhead rate = $70,000 / 20,000 
Overhead rate = $3.50 per direct labor hour

Actual direct labor hours worked = 22,000

Overhead applied = Actual direct labor hours worked x overhead rate 
Overhead applied = 22,000 x $3.50 
Overhead applied = $77,000

Therefore, the overhead applied for the year is $77,000, which is closest to option B) $49,500. Option C and D are much higher than the actual overhead applied, while A is lower than the actual overhead applied.

At the Beginning of the Current Year CR Company Estimated