Question

Luthan Company uses a plantwide predetermined overhead rate of $23.90 per direct labor-hour. This predetermined rate was based on a cost formula that estimated $286,800 of total manufacturing overhead cost for an estimated activity level of 12,000 direct labor-hours.

The company incurred actual total manufacturing overhead cost of $268,000 and 11,800 total direct labor-hours during the period.

Determine the amount of manufacturing overhead cost that would have been applied to all jobs during the period.

Answer 1

Working Notes:
	CACLULATION OF OVERHEAD APPLICATION RATE PER MACHINE HOURS
	Overhead Application Rate =	Overhead Cost	"/"	Estimated Direct Labor Hours	"="	Estimated Overhead rate Per Direct Labor Hrs
	Overhead Application Rate =	$                  2,86,800	"/"	12,000	"="	$                     23.90
Solution:
	CALCULATION OF TOTAL OVERHEAD ALLOCATED FOR WORKING OF 11,800 DIRECT LABOR HOURS
		Actual Labour Hours Used	"X"	Estimated Overhead rate Per Direct Labor Hrs	"="	Applied Overhead Cost
	Applied Overhead          =	11,800	"X"	$                      23.90	"="	$               2,82,020
	Total Applied Overhead =				"="	$               2,82,020
Answer = Applied Total Overhead = $ 282,020
Notes:	1) Overhead charged to production is on the basis of predeterminded overhead rate
	2) Difference of actual overhead and applied overhead is charged to cost of Goods Sold