Mesa Corp.allocates overhead to production on the basis of direct labor costs.Mesa's total estimated overhead is $450,000 and estimated direct labor is $180,000.Determine the amount of overhead applied to a job which used $20,000 of direct labor.
A)$8,000.
B)$20,000.
C)$70,000.
D)$50,000.
E)$90,000.

Question

Quizplus · Accepted Answer

To calculate the overhead applied to a job, we have to use the predetermined overhead rate, which is calculated as follows:

Predetermined overhead rate = Total estimated overhead / Estimated direct labor costs 
Predetermined overhead rate = $450,000 / $180,000 
Predetermined overhead rate = $2.50 per direct labor dollar

Therefore, the overhead applied to a job that used $20,000 of direct labor is:

Overhead applied = Predetermined overhead rate x Direct labor cost 
Overhead applied = $2.50 x $20,000 
Overhead applied = $50,000

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

Mesa CorpAllocates Overhead to Production on the Basis of Direct Labor