Santa Fe Company Santa Fe Company has two departments (Processing and Packaging)and uses a job-order costing system.Topeka applies overhead in Processing based on machine hours and on direct labor cost in Packaging.The following information is available for August:
Refer to Santa Fe Company What is the overhead application rate for Packaging?

Question

Santa Fe Company Santa Fe Company has two departments (Processing and Packaging)and uses a job-order costing system.Topeka applies overhead in Processing based on machine hours and on direct labor cost in Packaging.The following information is available for August:
 Refer to Santa Fe Company What is the overhead application rate for Packaging?

Quizplus · Accepted Answer

The overhead application rate for Packaging is based on direct labor cost. We have no information about the amount of overhead budgeted or actual overhead incurred. Therefore, we need to calculate the overhead application rate using the given information.

Total actual overhead applied in Packaging = $2,500 
Total actual direct labor cost in Packaging = $11,000

Overhead application rate = Total actual overhead applied / Total actual direct labor cost 
Overhead application rate = $2,500 / $11,000 
Overhead application rate = 0.227 or $0.23 (rounded to nearest cent)

Therefore, the overhead application rate for Packaging is $0.23 per dollar of direct labor cost, or $0.23 / $0.10 = 2.28 or approximately $2.30 per hour of direct labor cost.

The correct answer is B) $2.28.

Santa Fe Company Santa Fe Company Has Two Departments (Processing