Wendy Wall (WW)makes wall units.For the year,the following details have been budgeted.Output,10,000 units;factory overhead $1,250,000,of which 60% is variable.Each wall unit should take 2.5 hours of direct labor to produce.WW produced 9,500 units with 24,000 DLH used and $1,175,000 actual overhead was incurred.Overhead is allocated based on direct labor hours (DLH). What is Wendy's total overhead absorbed?

Question

Quizplus · Accepted Answer

Variable factory overhead is 60% of $1,250,000, which is $750,000. This means that the fixed factory overhead is $500,000. Using this information, we can calculate the predetermined overhead rate as follows:

Predetermined overhead rate = Total factory overhead costs / Total direct labor hours
Predetermined overhead rate = ($750,000 + $500,000) / (10,000 units x 2.5 DLH per unit)
Predetermined overhead rate = $1,250,000 / 25,000 DLH
Predetermined overhead rate = $50 per DLH

Actual overhead incurred is $1,175,000, which is allocated based on the actual direct labor hours used:
Total overhead absorbed = Actual DLH x Predetermined overhead rate
Total overhead absorbed = 24,000 DLH x $50 per DLH
Total overhead absorbed = $1,200,000

Therefore, the best choice is (C) $1,187,500, which is the closest option to the calculated total overhead absorbed.

Wendy Wall (WW)makes Wall Units