The following budget data are available for Happy Company: If factory overhead is to be applied based on direct labor hours as the cost allocation base for the predetermined overhead rate, the amount of overhead applied into production is
A) $180,000
B) $181,000
C) $172,500
D) $184,000

Question

The following budget data are available for Happy Company:  If factory overhead is to be applied based on direct labor hours as the cost allocation base for the predetermined overhead rate, the amount of overhead applied into production is
A) $180,000 
B) $181,000 
C) $172,500 
D) $184,000

Quizplus · Accepted Answer

To calculate the predetermined overhead rate, we need to divide the estimated factory overhead by the estimated direct labor hours. 
Predetermined overhead rate = Estimated Factory Overhead / Estimated Direct Labor Hours
Predetermined overhead rate = $690,000 / 4,500 hours = $153.33 per direct labor hour

To calculate the amount of overhead applied to production, we need to multiply the predetermined overhead rate by the actual direct labor hours worked.
Overhead applied to production = Actual Direct Labor Hours Worked x Predetermined Overhead Rate
Overhead applied to production = 1,125 x $153.33 = $172,498.75 (rounded to the nearest dollar)
Therefore, the answer is C, $172,500.

The Following Budget Data Are Available for Happy Company