Hancock Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Hancock estimated total overhead of $396,000; materials of $410,000 and direct labor of $220,000. During the year Hancock incurred $418,000 in materials costs, $413,200 in overhead costs and $224,000 in direct labor costs. Compute the overhead application rate.

Question

Quizplus · Accepted Answer

The overhead application rate is calculated by dividing the estimated total overhead by the estimated direct labor costs. So, $396,000 / $220,000 = 1.8 or 180%.

Hancock Manufacturing Allocates Overhead to Production on the Basis of Direct