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 amount of overhead applied to jobs during the year.

A) $396,000.
B) $424,450.
C) $413,190.
D) $413,200.
E) $403,200.

Question

Tommy Sanders · Accepted Answer

Final Answer : E, Explanation :  The overhead applied to jobs is calculated based on the estimated overhead and the actual direct labor costs, using the predetermined overhead rate. The predetermined overhead rate is calculated as estimated total overhead divided by estimated direct labor costs: $396,000 / $220,000 = 1.8. The overhead applied is then this rate multiplied by the actual direct labor costs: 1.8 * $224,000 = $403,200.

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