Jonathan Manufacturing adopted a job-costing system. For the current year, budgeted cost driver activity levels for direct labor hours and direct labor costs were 20,000 and $100,000, respectively. In addition, budgeted variable and fixed factory overhead costs were $50,000 and $25,000, respectively. Actual costs and hours for the year were as follows:
Direct labor hours 21,000
Direct labor costs $110,000
Machine hours 35,000
For a particular job, 1,500 direct-labor hours were used. Using direct-labor hours as the cost driver, what amount of overhead should be applied to this job?
A. $7,500
B. $3,214
C. $5,625
Answer (C) is correct.
D. $5,357
Little confused with the calculation of Fixed and Variable Overhead rates…According to Ninja Notes the fixed rate is calculated as budgeted costs/normal capacity and variable overhead rate= budgeted activity/ actual activity. However, in this problem they use the normal direct labor hours of 20,000 for both fixed and variable.
Answer:
To apply overhead to the job, both variable and fixed overhead must be properly allocated using standard rates and direct-labor hours as the cost driver. The pertinent information given for this year’s budget includes direct-labor hours of 20,000 and the budgeted variable and fixed factory overhead of $50,000 and $25,000, respectively. The variable overhead cost per direct labor hour is $2.50 ($50,000 ÷ 20,000 DLH), and the fixed overhead per direct labor hour is $1.25 ($25,000 ÷ 20,000 DLH). Thus, the total standard overhead cost per direct labor hour is $3.75. The total overhead to be applied is $5,625 (1,500 DLH × $3.75).
I thought variable overhead/unit should of been calculated as $50,000/21,000 hours = 2.38. 2.38 x 1,500= 3570.
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