Martinez Manufacturing applies overhead based on direct labor hours. The company estimates that their overhead for the year will be $180,000, and that they will use 72,000 direct labor hours. Martinez Manufacturing actually used 71,000 direct labor hours. The journal entry to record manufacturing overhead would include a:

Question

Quizplus · Accepted Answer

The correct overhead application rate is calculated as estimated overhead ($180,000) divided by estimated direct labor hours (72,000), which equals $2.50 per direct labor hour. The actual direct labor hours used were 71,000, so the applied overhead is 71,000 hours * $2.50 = $177,500. This amount is debited to Work in Process Inventory to reflect the application of overhead to production.

Martinez Manufacturing Applies Overhead Based on Direct Labor Hours