For 2010, Omaha Mechanical has a monthly overhead cost formula of $42,900 + $6 per direct labor hour. The firm's expected annual capacity is 78,000 direct labor hours, to be incurred evenly each month. Making one unit of the company's product requires 1.5 direct labor hours.
a. Determine the total overhead to be applied per unit of product in 2010.
b. Prepare journal entries to record the application of overhead to Work in Process Inventory and the incurrence of $128,550 of actual overhead in January 2010, when 6,390 direct labor hours were worked.
c. Given the actual direct labor hours in part (b), how many units would you have expected to be produced in January?
a. First calculate the predetermined overhead rate = Total overhead/Total direct labor hours
Total overhead = 42,900X12 (this is monthly) + 6 X direct labor hours and direct labor hours = 78,000
The solution explains how to calculate the predetermined overhead rate and use it to apply the overhead