Spice Simmers provided the following information from its accounting records for 2020: $\begin{array}{ll}
\text { Expected production } & \text { 30,000 labour hours }\
\text {Actual production } & \text { 28,000 labour hours}\
\text {Budgeted overhead } &\$1,500,000\
\text { Actual overhead } &\$1,450,000\
\end{array}$

How much is the overhead application rate if Spice Simmers bases the rate on direct labour hours?

Question

Spice Simmers provided the following information from its accounting records for 2020: $\begin{array}{ll}
  \text { Expected production } & \text { 30,000 labour hours }\
 \text {Actual production  } & \text { 28,000 labour hours}\
 \text {Budgeted overhead  } &\$1,500,000\
 \text { Actual overhead } &\$1,450,000\
\end{array}$

How much is the overhead application rate if Spice Simmers bases the rate on direct labour hours?

Quizplus · Accepted Answer

Overhead application rate is calculated by dividing the estimated annual overhead costs by the estimated annual direct labor hours. Using the given information, the overhead application rate can be calculated as: 
($184,300 ÷ 3,686) = $50 per direct labor hour. Therefore, the correct answer is choice C.

Spice Simmers Provided the Following Information from Its Accounting Records