Nanjones applies overhead based on planned machine hours using a predetermined annual rate. The total amount of planned annual manufacturing overhead is the sum of fixed and variable factory overheads, or $3,600,000 ($1,200,000 fixed + $2,400,000 variable). Planned machine hours are 240,000. Knowing these two numbers we can now calculate the predetermined overhead application rate of $15 per hour ($3,600,000 ÷ 240,000). Now we can calculate the amount of overhead applied using this application rate and the number of machine hours planned for the actual level of output, which is 21,000 hours. The total overhead applied is $15 × 21,000, or $315,000.
This is the total planned manufacturing overhead (fixed and variable) for the month of November. The amount of overhead applied is the annual predetermined application rate multiplied by the amount of the application base (here machine hours) allowed for the actual output.
This amount is calculated using labor hours as the base of overhead allocation at the rate of $75 and the amount of planned direct labor hours for given level of output. See the correct answer for a complete explanation.
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The total amount of overhead applied to production for November was