Savannah Factory applies manufacturing overhead based on direct labor cost. Information concerning manufacturing overhead and labor for August follows: $$\begin{array} { l r r }
& \text { Estimated } & \text { Actual } \
\text { Overhead cost } & \$ 174,000 & \$ 171,100 \
\text { Direct labor hours } & 5,800 & 5,900 \
\text { Direct labor cost } & \$ 87,000 & \$ 89,975
\end{array}$$ How much overhead should be applied in total during August?

Question

Savannah Factory applies manufacturing overhead based on direct labor cost. Information concerning manufacturing overhead and labor for August follows: $$\begin{array} { l r r } 
& \text { Estimated }  & \text { Actual } \
\text { Overhead cost } & \$ 174,000 & \$ 171,100 \
\text { Direct labor hours } & 5,800 & 5,900 \
\text { Direct labor cost } & \$ 87,000 & \$ 89,975
\end{array}$$ How much overhead should be applied in total during August?

Quizplus · Accepted Answer

Overhead is applied based on direct labor cost. The actual direct labor cost for August is $89,975. The predetermined overhead rate is $174,000 / $87,000 = 2.00 per direct labor dollar. Therefore, the overhead applied in total during August is $89,975 x 2.00 = $179,950.

Savannah Factory Applies Manufacturing Overhead Based on Direct Labor Cost