Hancock Manufacturing allocates overhead to production on the basis of direct la

Question

Hancock Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Hancock estimated total overhead of $292,500; materials of $415,000 and direct labor of $225,000. During the year Hancock incurred $423,000 in materials costs, $415,100 in overhead costs and $229,000 in direct labor costs. Compute the overhead application rate.

Hancock Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Hancock estimated total overhead of $292,500; materials of $415,000 and direct labor of $225,000. During the year Hancock incurred $423,000 in materials costs, $415,100 in overhead costs and $229,000 in direct labor costs. Compute the overhead application rate.

Explanation / Answer

Overhead application rate = $292500/$22500=130%

Overhead applied = $229000×130%=$297700

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