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Tuscany Company estimated the following costs at the beginning of a particular year: Overhead $5,340,000 Direct labor cost $890,000 Tuscany uses normal costing and applies overhead on the basis of direct labor cost. (Direct labor cost equals total direct labor hours worked multiplied by the wage rate.) The direct labor cost was $50,000 for the month of January. Determine the overhead applied for the month of January.

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Answer: $300,000

Explanation:

As overhead is applied on the basis of direct labor cost, the overhead rate for the period is:

= Overhead / Direct labor cost * 100%

= 5,340,000 / 890,000 * 100%

= 600%

If direct labor cost is $50,000 then overhead applied will be:

= Direct labor cost * Overhead rate

= 50,000 * 600%

= $300,000

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