Dori Castings is a job order shop that uses a standard cost system to account for its production costs. Manufacturing overhead costs are applied to production on the basis of direct labour hours.
-What amount of fixed overhead would Dori apply to finished production?
A) The actual direct labour hours multiplied by the standard fixed overhead rate per direct labour hour.
B) The standard hours allowed for the actual units of finished output multiplied by the standard fixed overhead rate per direct labour hour.
C) The standard units of output for the actual direct labour hours worked multiplied by the standard fixed overhead rate per unit of output.
D) The actual fixed overhead cost per direct labour hour multiplied by the standard hours allowed for standard output.

Question

Quizplus · Accepted Answer

Fixed overhead is typically allocated based on a standard rate per direct labor hour. For finished products, the most appropriate allocation base is the standard hours allowed for the actual units of output. This ensures that the overhead cost is spread evenly across all units of output produced, regardless of the actual labor hours worked. Therefore, option B is the correct answer. Option A allocates fixed overhead based on actual hours worked, rather than standard hours, which can lead to over- or under-allocation of fixed overhead costs. Option C multiplies standard units of output by a standard fixed overhead rate per unit, which is not appropriate for finished production. Option D does not make sense as it refers to actual fixed overhead cost per hour rather than a standard fixed overhead rate per hour.

Dori Castings Is a Job Order Shop That Uses a Standard