Question

The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base. What is the method used to compute the plantwide overhead cost allocation rate?

1) Direct labor hours
2) Direct material cost
3) Machine hours
4) Number of units produced

Answer 1

The method used to compute the plantwide overhead cost allocation rate is to divide the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base. This is known as the plantwide allocation rate formula. The correct answer is 1) Direct labor hours.

Step-by-step explanation:

The method used to compute the plantwide overhead cost allocation rate is to divide the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base. This is known as the plantwide allocation rate formula.

Let's say the estimated total manufacturing overhead costs is $100,000 and the estimated total quantity of the cost allocation base is 10,000 direct labor hours.

To calculate the plantwide overhead cost allocation rate, we divide $100,000 by 10,000 direct labor hours, which gives us $10 per direct labor hour.

Therefore, the correct answer is 1) Direct labor hours.