Edwards Auto Body uses a job order cost system.Overhead is applied to jobs on the basis of direct labor hours.During the current period,Job No.337 was charged $425 in direct materials,$475 in direct labor,and $190 in overhead.If direct labor costs an average of $16 per hour,the company's overhead application rate is:
A)$7.27 per direct labor hour.
B)$6.40 per direct labor hour.
C)$17.50 per direct labor hour.
D)$40 per direct labor hour.

Question

Quizplus · Accepted Answer

We can calculate the overhead application rate using the following formula:

Overhead application rate = Estimated total overhead cost / Estimated total direct labor hours

Since the problem does not provide us with estimated total overhead cost or estimated total direct labor hours, we can use the given information to calculate the overhead application rate for Job No.337:

Direct materials cost = $425
Direct labor cost = $475
Overhead cost = $190

Total cost = $1,090

Direct labor hours = Direct labor cost / Direct labor rate per hour
Direct labor hours = $475 / $16 per hour
Direct labor hours = 29.69 hours (rounded to 30 hours)

Overhead application rate = Overhead cost / Direct labor hours
Overhead application rate = $190 / 30 hours
Overhead application rate = $6.33 per direct labor hour (rounded to $6.40 per direct labor hour)

Therefore, the overhead application rate is $6.40 per direct labor hour.

Edwards Auto Body Uses a Job Order Cost System