Grey, Inc., uses a predetermined rate to apply overhead. At the beginning of the year, Grey estimated its overhead costs at $220,000, direct labor hours at 55,000, and machine hours at 20,000. Actual overhead costs incurred were $233,250, actual direct labor hours were 62,000, and actual machine hours were 15,000.
If the predetermined overhead rate is based on machine hours, what is the total amount credited to the factory overhead account for the year for Grey?
A)$240,000
B)$135,000
C)$215,000
D)$165,000

Question

Quizplus · Accepted Answer

The predetermined overhead rate based on machine hours is calculated as estimated overhead costs divided by estimated machine hours: $220,000 / 20,000 hours = $11 per machine hour. The total amount credited to the factory overhead account for the year is the predetermined rate multiplied by the actual machine hours used: $11 * 15,000 hours = $165,000.

Grey, Inc, Uses a Predetermined Rate to Apply Overhead