The following info was available for the Lincoln Company, a manufacturer of cand

Question

The following info was available for the Lincoln Company, a manufacturer of candy, for the year ended 12/31/07:
Item Amount
Budgeted Direct labor Hours 76,000
Actual Direct Labor Hours 78,500
Budgeted Factory Overhead 624,720
Actual Factory Overhead 638,000

Certain ends of year balances are as follows:
Item Amount
Raw Material Inventory 150,000
Work in Process Inventory 150,000
Finished Goods Inventory 300,000
Cost of Goods Sold 200,000

If the company uses direct labor hours to allocate overhead, compute the application rate. Express your answer as a percentage.

Explanation / Answer

Applied overhead per 1 labor hour = Budgeted factory overhead / Budgeted labor hours                                                       = 624,720 / 76,000 Applied overhead per 1 labor hour = $8.22 Actual direct labor hours worked     = 78,500 Applied factory overhead                = 78,500 x $8.22 So applied factory overhead            = $645,270

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