Question

Production workers for Chadwick Manufacturing Company provided 3,200 hours of labor in January and 2,800 hours in February. The company, whose operation is labor intensive, expects to use 48,000 hours of labor during the year. Chadwick paid a $120,000 annual premium on July 1 of the prior year for an insurance policy that covers the manufacturing facility for the following 12 months. Required Based on this information, how much of the insurance cost should be allocated to the products made in January and to those made in February? (Do not round intermediate calculations.)

Answer 1

The insurance cost should be allocated to the products made in January and to those made in February is $8,000 and $7,000 respectively.

Step-by-step explanation:

For computing the allocated insurance cost, first, we have to compute the per labor rate which is shown below:

Per labor rate = (Annual premium) ÷ (Labor hours)

= ($120,000) ÷ (48,000 hours)

= $2.5

Now the insurance cost would be

For January = Labor rate per hour × number of labor hours\

= 3,200 hours × $2.5

= $8,000

For February = Labor rate per hour × number of labor hours

= 2,800 hours × $2.5

= $7,000