Spice Simmers provided the following information from its accounting records for 2016: $\begin{array}{ll}
\text { Expected production } & \text { 30,000 labour hours }\
\text { Actual production } & \text { 28,000 labour hours} \
\text { Budgeted overhead } &\$ 1,500,000\
\text {Actual overhead } &\$ 1450,000\
\end{array}$
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 2016: $\begin{array}{ll}
  \text { Expected production } & \text { 30,000 labour hours }\
 \text { Actual production } & \text {   28,000 labour hours} \
 \text { Budgeted overhead } &\$ 1,500,000\
 \text {Actual overhead  } &\$ 1450,000\
\end{array}$
 How much is the overhead application rate if Spice Simmers bases the rate on direct labour hours?

Quizplus · Accepted Answer

The overhead application rate is calculated by dividing total overhead costs by the total direct labour hours. From the information given, total overhead costs are $500,000 and total direct labour hours are 10,000 hours. Thus, the overhead application rate is $500,000/10,000 hours = $50 per hour. Therefore, the best choice is C.

Spice Simmers Provided the Following Information from Its Accounting Records