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Estimated factory overhead for the year is $27,000 and estimated machine hours are 900. Six jobs use 6, 10, 8, 25, 14 and 7 machine hours. How much overhead is applied?
A$1,750
B$2,700
C$2,100
D$2,450
Answer & Solution
Correct answer: C. $2,100
1. The cost pool is estimated factory overhead of $27,000 for the year.
2. The driver is machine hours, estimated at 900 hours for the year.
3. The predetermined factory overhead rate is $27,000 divided by 900 hours, which is $30 per machine hour.
4. Machine hours actually used are 6 plus 10 plus 8 plus 25 plus 14 plus 7, which is 70 hours.
5. Overhead applied is 70 machine hours times $30 per machine hour, which is $2,100.
6. Work in Process is debited $2,100 and Factory Overhead is credited $2,100.
7. $2,700 comes from applying a tenth of the annual estimate, which no rate in this problem supports.
8. $1,750 uses 70 hours at $25 per hour, a rate that would need estimated hours of 1,080.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 2.2 Comprehensive Example of Job Order Costing Transactions for a Manufacturing Company_
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