Company, Inc. applies overhead on the basis of direct labour hours. At the beginning of the year, Company, Inc. estimates overhead to be $540,000, machine hours to be 150,000, and direct labour hours to be 90,000. During January, Company, Inc. has 8,000 direct labour hours and 12,000 machine hours.
-Refer to the Figure.What is the overhead applied for January?

Question

Quizplus · Accepted Answer

The overhead rate is calculated by dividing the estimated overhead by the estimated direct labour hours: $540,000 / 90,000 hours = $6 per direct labour hour. For January, the overhead applied is 8,000 direct labour hours * $6 = $48,000.