Question

Walton Corporation builds sailboats. On January 1, year 3, the company had the following account balances: $70,000 for both cash and common stock. Boat 25 was started on February 10 and finished on May 31. To build the boat, Walton had incurred cash costs of $5,900 for labor and $4,100 for materials. During the same period, Walton paid $7,630 cash for actual manufacturing overhead costs. The company expects to incur $169,000 of indirect overhead cost during year 3. The overhead is allocated to jobs based on direct labor cost. The expected total labor cost for the year is $130,000. What is the missing information?

a) Total revenue
b) Net profit
c) Gross profit
d) Total overhead allocation

Answer 1

The total overhead allocation for Walton Corporation's Boat 25 is calculated using the expected indirect overhead costs and the expected total labor cost to get an overhead allocation rate, which when applied to Boat 25's direct labor cost, results in an overhead allocation of $7,670.

Step-by-step explanation:

The student's question pertains to the calculation of total overhead allocation for Walton Corporation's production of sailboats. To find the total overhead allocation for Boat 25, we use the given expected indirect overhead costs and the expected total labor cost for the year to calculate the overhead rate. The overhead allocation rate is determined by dividing the expected total indirect overhead costs by the expected total labor cost, which equals $169,000 / $130,000.

The resulting overhead allocation rate is then applied to the direct labor cost incurred for Boat 25 to find the overhead allocated to it. The rate is 1.3 ($169,000 / $130,000), and we multiply it by the direct labor cost of $5,900 incurred on Boat 25 to obtain the allocated overhead for this specific job.