Question

Ridgeway Corporation uses direct labor hours to allocate overhead to Work-in-Process. The company's budgeted overhead is $420,000 and it expects to produce 40,000 vases this period. It takes 2 direct labor hours to produce one vase. If 60,000 direct labor hours are actually worked during the period, how much overhead should be allocated to the Work-in-Process inventory?

Answer 1

Answer:

$315,000

Explanation:

Overhead estimate per vase  = Budgeted overhead/ Budget vases

                                                 = $420,000/ 40,000 vases

                                                 = $10.5 per vase

Number of vases produced    = Total direct labor hours/ Labor hours per unit

                                                 = 60,000/ 2

                                                 = 30,000 vases

Overhead costs                       = Overhead cost per unit X number of vases

                                                 = $10.5 X 30,000

                                                 = $315,000

Therefore, overhead cost to be allocated to Work-in- Progress inventory is $315,000.