The 195 Factory, Inc., produces replacement parts for Cessna aircraft. The company employs a job order costing system with a plant-wide overhead rate based on direct labor hours. For the current year, estimated overhead is $800,000. The company employs five direct laborers, each of whom was expected to work 2,000 hours in the current year. The 195 Factory has just completed production of a replacement aileron assembly for Fortune Air Flying Club. This job required 12 hours of direct labor time to complete. What amount of overhead cost will be applied to the Fortune Air Flying Club job?

Question

Quizplus · Accepted Answer

Overhead is applied based on direct labor hours. Each direct laborer was expected to work 2,000 hours in the current year, for a total of 10,000 direct labor hours. The overhead rate is $800,000 / 10,000 hours = $80 per hour. The Fortune Air Flying Club job required 12 hours of direct labor time, so the overhead cost applied to the job will be $80 per hour * 12 hours = $960.