Austin Company uses a job order cost accounting system. The company's executives estimated that direct labor would be $2,000,000 (200,000 hours at $10/hour) and that factory overhead would be $1,500,000 for the current period. At the end of the period, the records show that there had been 180,000 hours of direct labor and $1,200,000 of actual overhead costs. Using direct labor hours as a base, what was the predetermined overhead allocation rate?
A) $6.00 per direct labor hour.
B) $7.50 per direct labor hour.
C) $6.67 per direct labor hour.
D) $8.33 per direct labor hour.
E) $7.08 per direct labor hour.

Question

Quizplus · Accepted Answer

The predetermined overhead allocation rate is calculated by dividing the estimated factory overhead by the estimated direct labor hours. In this case, $1,500,000 divided by 200,000 hours equals $7.50 per direct labor hour.

Austin Company Uses a Job Order Cost Accounting System