Chapter 2, Problem 1MCQ

To determine

Overheads:

Overheads are that cost or expense that is incurred by a business or an organization which are not directly related to the production cost or any specific activity. For example: depreciation, rent, property tax and insurance.

Direct Labor Cost:

Direct labor cost is the cost incurred by the business or an organization that are directly related to productivity of the business and directly associated with the operations of the business. For example: auditing and in service industry.

To Compute: The overhead cost.

Explanation of Solution

Option c, $45,000 is correct.

Given,
Overhead rate is 150 %.
Total direct labor cost is $30,000.

Formula to calculate the overheads cost,

$\text{Total}\text{Overhead}\text{Cost}=\text{Overhead}\text{Rate}\times \text{Total}\text{Direct}\text{Labor}\text{Cost}$

Substitute 150% for overhead rate and $30,000 for total direct labor cost.

$\begin{array}{c}\text{Total}\text{Overhead}\text{Cost}=150\%\times \$30,000\\ =\$45,000\end{array}$

Substitute 150% for overhead rate and $30,000 for total direct labor cost.

$\begin{array}{c}\text{Total}\text{Overhead}\text{Cost}=150\%\times \$30,000\\ =\$45,000\end{array}$

Hence, the total overhead cost applied is $45,000.