Deltan Corp. allocates overhead to production on the basis of direct labor costs. Deltan's total estimated overhead is $450,000 and estimated direct labor is $180,000. Determine the amount of overhead to be allocated to finished goods inventory if there is $20,000 of total direct labor cost in the jobs in the finished goods inventory.
A) $8,000.
B) $20,000.
C) $70,000.
D) $50,000.
E) $90,000.

Question

Quizplus · Accepted Answer

To allocate overhead to finished goods inventory, we need to use the predetermined overhead rate, which is calculated as the total estimated overhead divided by the estimated direct labor cost.

Predetermined overhead rate = $450,000 ÷ $180,000 = $2.50 per direct labor dollar

The amount of overhead allocated to finished goods inventory can then be calculated by multiplying the predetermined overhead rate by the actual direct labor cost of the jobs in finished goods inventory:

Overhead allocated to finished goods inventory = $2.50 per direct labor dollar x $20,000 direct labor cost in finished goods inventory = $50,000

Therefore, the correct answer is D) $50,000.