Ridley Company estimates that overhead costs for the next year will be $6,870,000 for indirect labor and $450,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 160,000 direct labor hours are budgeted for next year. If the actual direct labor hours in the next year totaled 158,200, what is the amount of manufacturing overhead applied for the year?

Question

Quizplus · Accepted Answer

First, we need to calculate the predetermined overhead rate.

Predetermined overhead rate = Total estimated overhead cost / Total estimated direct labor hours

Predetermined overhead rate = ($6,870,000 + $450,000) / 160,000 = $45.44 per direct labor hour

Next, we need to calculate the amount of overhead applied for the year.

Manufacturing overhead applied = Predetermined overhead rate x Actual direct labor hours

Manufacturing overhead applied = $45.44 x 158,200 = $7,237,648

Therefore, the best choice is B.

Ridley Company Estimates That Overhead Costs for the Next Year