Question

On March 1 a dressmaker starts work on three custom-designed wedding dresses. The company uses job order costing and applies overhead to each job (dress) at the rate of 40% of direct materials costs. During the month, the jobs used direct materials as shown below. Compute the amount of overhead applied to each of the three jobs.

	Job 1	Job 2	Job 3
Direct material used	\(5,000	\)7,000	$1,500

Short answer

	Job 1	Job 2	Job 3
Overhead applied	$2,000	$2,800	$600

Step-by-step solution

Definition of Direct Material Cost

Direct material cost refers to the expenses incurred by the business entity directly identified with the product, which is included in the cost of goods sold.

Overhead applied to each Job

	Job 1	Job 2	Job 3
Direct material used	$5,000	$7,000	$1,500
Overhead rate	40%	40%	40%
Overhead applied	$2,000	$2,800	$600

Working note:

$\mathbf{Over}\mathbf{}\mathbf{head}\mathbf{}\mathbf{applied}\mathbf{=}\mathbf{Direct}\mathbf{}\mathbf{material}\mathbf{\times }\mathbf{Over}\mathbf{}\mathbf{head}\mathbf{}\mathbf{rate}$