Barr Mfg. provided the following information from its accounting records for 2013:

Expected production 30,000 labor hours

Actual production 28,000 labor hours

Budgeted overhead $900,000

Actual overhead $870,000

How much is the overhead application rate if Barr bases the rate on direct labor hours?

Select one:

a. $32.14 per hour

b. $30.00 per hour

c. $31.07 per hour

d. $29.00 per hour

b. $30.00 per hour

Explanation:

Overhead application rate is calculated by dividing the Budgeted overhead by the budgeted level of activity on which the overhead is applied.

Overhead application rate = Budgeted overhead / Budgeted activity

Overhead application rate = Budgeted overhead / Budgeted labor hours

Overhead application rate = $900,000 / 30,000 labor hours

Overhead application rate = $30 per labor hour.