Adams manufacturing allocates overhead to production on the basis of direct labor costs. at the beginning of the year, adams estimated total overhead of $396,000; materials of $410,000 and direct labor of $220,000. during the year adams incurred $418,000 in materials costs, $413,200 in overhead costs and $224,000 in direct labor costs. compute the overhead application rate.

The overhead application rate is 1.8

Explanation:

In the question both the estimated and actual overhead cost , material and labor cost are provided -

                                     ESTIMATED                 ACTUAL

Overhead cost             $396,000                     $418,000

Material cost                $410,000                      $413,200

Direct cost                    $220,000                    $224,000

Overhead application rate can be calculated by dividing the total budgeted overhead cost by direct labor cost.

= Budgeted overhead cost / direct labor cost

= $396,000 / $220,000

= 1.8

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