Smith Fabricating uses job costing and applies overhead using a normal costing system and uses direct labour cost as the allocation base. This period's estimated overhead cost is $100,000 and estimated direct labour cost of $50,000 and 2,500 direct labour hours. What is the overhead allocation rate?

Question

Business

Albert Palmer

27 October, 04:50

Smith Fabricating uses job costing and applies overhead using a normal costing system and uses direct labour cost as the allocation base. This period's estimated overhead cost is $100,000 and estimated direct labour cost of $50,000 and 2,500 direct labour hours. What is the overhead allocation rate?

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Answers (1)

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Kendra Rios · Answer 1

Estimated manufacturing overhead rate = $40 per direct labor hour

Explanation:

Giving the following information:

This period's estimated overhead cost is $100,000 and an estimated direct labor cost of $50,000 and 2,500 direct labor hours.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

Estimated manufacturing overhead rate = 100,000/2,500 = $40 per direct labor hour