The Rowe Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of machine-hours. During January, the company budgeted to incur £225,000 in manufacturing overhead cost and to operate at a denominator activity level of 25,000 machine-hours. At standard, each unit of finished product requires 3 machine-hours. The following cost and activity were recorded during January. $\begin{array}{ll}
\text { Total actual manufacturing ov erhead cost incurred } & £ 217,750 \
\text { Units of product completed } & 8,000 \
\text { Actual machine-hours worked } & 23,000
\end{array}$The amount of overhead cost that the company applied to Work in Process for January was

A)£217,750.
B)£225,000.
C)£221,600.
D)£216,000.

Question

The Rowe Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of machine-hours. During January, the company budgeted to incur £225,000 in manufacturing overhead cost and to operate at a denominator activity level of 25,000 machine-hours. At standard, each unit of finished product requires 3 machine-hours. The following cost and activity were recorded during January. $\begin{array}{ll}
\text { Total actual manufacturing ov erhead cost incurred } & £ 217,750 \
\text { Units of product completed } & 8,000 \
\text { Actual machine-hours worked } & 23,000
\end{array}$The amount of overhead cost that the company applied to Work in Process for January was

A)£217,750.
B)£225,000.
C)£221,600.
D)£216,000.

Quizplus · Accepted Answer

The overhead cost applied to Work in Process is calculated based on the standard cost system, which applies manufacturing overhead on the basis of machine-hours. The standard overhead rate is £225,000 / 25,000 machine-hours = £9 per machine-hour. With 8,000 units completed at 3 machine-hours per unit, the total machine-hours are 8,000 units * 3 machine-hours/unit = 24,000 machine-hours. Therefore, the applied overhead cost is 24,000 machine-hours * £9/machine-hour = £216,000.

The Rowe Company Uses a Standard Cost System in Which