The Ammon Company uses a standard cost system in which manufacturing overhead is applied to units on the basis of standard machine-hours. During July, the company budgeted $350,000 in manufacturing overhead cost at a denominator activity of 25,000 machine-hours. At standard, each unit of finished product requires 5 machine-hours. The following cost and activity were recorded during July: The amount of overhead cost that the company applied to work in process for July was:
A)$292,500
B)$315,000
C)$322,000
D)$325,000

Question

The Ammon Company uses a standard cost system in which manufacturing overhead is applied to units on the basis of standard machine-hours. During July, the company budgeted $350,000 in manufacturing overhead cost at a denominator activity of 25,000 machine-hours. At standard, each unit of finished product requires 5 machine-hours. The following cost and activity were recorded during July:  The amount of overhead cost that the company applied to work in process for July was:
A)$292,500 
B)$315,000 
C)$322,000 
D)$325,000

Quizplus · Accepted Answer

Based on the information given, we can calculate the total machine-hours used during July:

Total machine-hours = 9,200 + 5,000 + 6,300 = 20,500

To apply overhead cost to work in process, we need to calculate the overhead rate:

Overhead rate = Budgeted overhead cost ÷ Denominator activity level
= $350,000 ÷ 25,000 machine-hours
= $14 per machine-hour

Now, we can calculate the amount of overhead cost applied to work in process:

Overhead cost applied = Actual machine-hours used × Overhead rate
= 20,500 machine-hours × $14 per machine-hour
= $315,000

Therefore, the amount of overhead cost that the company applied to work in process for July was $315,000, which is answer choice B.

The Ammon Company Uses a Standard Cost System in Which