Question

Simple Company uses a traditional volume-based costing system with a single overhead cost pool and direct labor hours as the cost driver. Simple estimates total overhead for the year at $76,200 and total direct labor hours of 10,000. The company has conducted an ABC analysis with the following data: Activity Activity Cost Driver Driver Rate Setups Number of setups $0.50 Machining Number of machine hours $10.00 Packaging Number of units $2.00 Testing Number of testing hours $4.00 The two jobs processed in the month of June had the following characteristics: Cost Driver Job A Job B Direct materials cost $20,000 $80,000 Direct labor cost $10,000 $100,000 Number of direct labor hours 100 2,500 Number of setups 90 100 Number of machine hours 1,000 800 Number of units 300 110 Number of testing hours 25 200. What is Simple Company's single overhead cost driver rate if the company allocates all overhead based on direct labor hours?

Answer 1

Simple Company's single overhead cost driver rate is $7.62 per direct labor hour, which is calculated by dividing the total overhead of $76,200 by the total direct labor hours of 10,000.

Step-by-step explanation:

To calculate Simple Company's single overhead cost driver rate, we divide the total estimated overhead costs by the total number of direct labor hours. According to the information given, the total overhead is $76,200 and the total direct labor hours are 10,000 hours.

To obtain the overhead rate, we perform the following calculation:

Overhead Rate = Total Overhead / Total Direct Labor Hours
= $76,200 / 10,000 hours
= $7.62 per direct labor hour

Therefore, the overhead rate that Simple Company would use if allocating all overhead based on direct labor hours is $7.62 per direct labor hour.