Trust Company applies overhead based on direct labor hours.At the beginning of the year, Trust estimates overhead to be $700,000, machine hours to be 200,000, and direct labor hours to be 35,000.During February, Trust has 5,000 direct labor hours and 10,000 machine hours.
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What is the amount of overhead applied for February?
A) $69,500
B) $22,000
C) $124,000
D) $185,200
E) $100,000

Question

Trust Company applies overhead based on direct labor hours.At the beginning of the year, Trust estimates overhead to be $700,000, machine hours to be 200,000, and direct labor hours to be 35,000.During February, Trust has 5,000 direct labor hours and 10,000 machine hours.  
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What is the amount of overhead applied for February?
A) $69,500
B) $22,000
C) $124,000
D) $185,200
E) $100,000

Quizplus · Accepted Answer

Predetermined Overhead Rate = Estimated Annual Overhead / Estimated Annual Activity Level
Predetermined Overhead Rate = $700,000 / 35,000 direct labor hours = $20 per direct labor hour  
Applied overhead = $20 × 5,000 direct labor hours = $100,000

Trust Company Applies Overhead Based on Direct Labor Hours