Olympia Manufacturing uses a predetermined overhead allocation rate based on a percentage of direct labor cost. At the beginning of 2014, Olympia estimated total manufacturing overhead costs at $1,050,000 and total direct labor costs at $840,000. In June, 2014, Job 511 was completed. Job stats are as follows: $$\begin{array} { | l | r | }
\hline \text { Direct materials cost } & \$ 27,500 \
\hline \text { Direct labor cost } & \$ 13,000 \
\hline \text { Direct labor hours } & 400 \text { hours } \
\hline \text { Units of product produced } & 200 \
\hline
\end{array}$$ What is the amount of manufacturing overhead costs allocated to Job 511?

Question

Olympia Manufacturing uses a predetermined overhead allocation rate based on a percentage of direct labor cost. At the beginning of 2014, Olympia estimated total manufacturing overhead costs at $1,050,000 and total direct labor costs at $840,000. In June, 2014, Job 511 was completed. Job stats are as follows: $$\begin{array} { | l | r | } 
\hline \text { Direct materials cost } & \$ 27,500 \
\hline \text { Direct labor cost } & \$ 13,000 \
\hline \text { Direct labor hours } & 400 \text { hours } \
\hline \text { Units of product produced } & 200 \
\hline
\end{array}$$ What is the amount of manufacturing overhead costs allocated to Job 511?

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as total estimated overhead costs divided by total estimated direct labor costs. Thus, $1,050,000 / $840,000 = 1.25 or 125%. The overhead allocated to Job 511 is 125% of its direct labor cost: $13,000 * 1.25 = $16,250.

Olympia Manufacturing Uses a Predetermined Overhead Allocation Rate Based on a Percentage