The Ammon Company uses a standard cost system in which manufacturing overhead is applied to units on the basis of machine-hours. During July, the company budgeted £350,000 in manufacturing overhead cost at a denominator activity of 25,000 machine-hours. At standard, each unit of finished product requires 5 machine-hours. The follow cost and activity were recorded during July$\begin{array}{ll}
\text { Total actual manufacturing ov erhead cost incurred } & £ 325,000 \
\text { Units of product completed } & 4,500 \
\text { Actual machine-hours worked } & 23,000
\end{array}$
The amount of overhead cost that the company applied to work in process for July was

A)£292,500.
B)£315,000.
C)£322,000.
D)£325,000.

Question

The Ammon Company uses a standard cost system in which manufacturing overhead is applied to units on the basis of machine-hours. During July, the company budgeted £350,000 in manufacturing overhead cost at a denominator activity of 25,000 machine-hours. At standard, each unit of finished product requires 5 machine-hours. The follow cost and activity were recorded during July$\begin{array}{ll}
\text { Total actual manufacturing ov erhead cost incurred } & £ 325,000 \
\text { Units of product completed } & 4,500 \
\text { Actual machine-hours worked } & 23,000
\end{array}$
The amount of overhead cost that the company applied to work in process for July was

A)£292,500.
B)£315,000.
C)£322,000.
D)£325,000.

Quizplus · Accepted Answer

The overhead rate is calculated as £350,000 / 25,000 machine-hours = £14 per machine-hour. For 4,500 units completed, the standard machine-hours are 4,500 units * 5 machine-hours/unit = 22,500 machine-hours. The applied overhead is 22,500 machine-hours * £14/machine-hour = £315,000.

The Ammon Company Uses a Standard Cost System in Which