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Estimated factory overhead is $2,000 and the activity base is an estimated 200 direct labor hours. If 110 direct labor hours are actually used, how much overhead is applied?
A$2,000
B$2,200
C$1,000
D$1,100
Answer & Solution
Correct answer: D. $1,100
1. The predetermined rate is estimated total factory overhead divided by the estimated hours in the activity base.
2. That is $2,000 divided by 200 direct labor hours, giving $10 per direct labor hour.
3. Actual activity for the period is 110 direct labor hours.
4. Overhead applied is 110 hours times $10 per hour, which is $1,100.
5. $2,000 is the estimate for the whole activity base of 200 hours, not the amount earned by 110 hours.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 2.1 Introduction_
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