Shoe Co. thinks machine hours is the best activity base for its manufacturing overhead. The estimate of annual overhead costs for its jobs was $2,050,000. The company used 1,000 hours of processing on Job No. LKP during the period and incurred overhead costs totaling $2,100,000. The budgeted machine hours for the year totaled 40,000.

How much overhead should be applied to Job No. LKP?

a.$52,500

b.$51,250

c.$1,050

d.$1,025

The correct answer is B

Explanation:

Giving the following information:

The estimate of annual overhead costs for its jobs was $2,050,000.

The budgeted machine hours for the year totaled 40,000.

The company used 1,000 hours of processing on Job No. LKP.

First, we need to calculate the estimated manufacturing overhead rate  using the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 2,050,000/40,000= $51.25 per machine hour

Now, we can allocate overhead to Job LKP:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 51.25*1,000= $51,250

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