In 2018 Valentino Coffee Supplies planned the following:
$$\begin{array} { l r }
\text { Factory overhead costs } & \$ 120000 \
\text { Direct labour costs (12 } 000 \text { hours at } \$ 8.00 \text { per hour) } & \$ 96000 \
\text { Machine Hours } & 45000 \
\text { Direct material costs } & \$ 85000
\end{array}$$
The predetermined overhead rate is based on direct labour hours and planned production during 2018 is 20 000 units. By the end of 2018, a total of 18 000 units had been produced and 11 000 direct labour hours used. How much overhead was applied to work in process?

Question

In 2018 Valentino Coffee Supplies planned the following:
$$\begin{array} { l r } 
\text { Factory overhead costs } & \$ 120000 \
\text { Direct labour costs (12 } 000 \text { hours at } \$ 8.00 \text { per hour) } & \$ 96000 \
\text { Machine Hours } & 45000 \
\text { Direct material costs } & \$ 85000
\end{array}$$
The predetermined overhead rate is based on direct labour hours and planned production during 2018 is 20 000 units. By the end of 2018, a total of 18 000 units had been produced and 11 000 direct labour hours used. How much overhead was applied to work in process?

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as total factory overhead costs divided by total direct labour hours planned. This is $120,000 / 12,000 hours = $10 per direct labour hour. For 11,000 direct labour hours used, the applied overhead is 11,000 hours * $10/hour = $110,000.

In 2018 Valentino Coffee Supplies Planned the Following The Predetermined Overhead Rate Is Based on Direct Labour Hours