Trust Company Applies Overhead Based on Direct Labor Hours

question 102

Multiple Choice

Trust Company applies overhead based on direct labor hours.At the beginning of the year, Trust estimates overhead to be $700,000, machine hours to be 200,000, and direct labor hours to be 35,000.During February, Trust has 5,000 direct labor hours and 10,000 machine hours.
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What is the predetermined overhead rate?

• A) $15.00 per machine hour
• B) $14.00 per direct labor hour
• C) $20.00 per direct labor hour
• D) $18.00 per machine hour
• E) None of these are correct.

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Definitions:

Historical Cost

Historical cost is the original monetary value of an economic item purchased or incurred, used as a basis for accounting and financial reporting.

Replacement Cost

The current cost of replacing an asset with a similar one at its current market price.

Reorganization

A process aimed at restructuring a company's financial or operational aspects for efficiency or to facilitate a smoother operation.