Question

Channing Corporation makes two products (A1 and B2) that require direct materials, direct labor, and overhead. The following data refer to operations expected for next month. A1 B2 Total Revenue $ 170,000 $ 510,000 $ 680,000 Direct material 65,000 130,000 195,000 Direct labor 54,000 128,250 182,250 Overhead: Direct-material related 42,900 Direct-labor related 40,095 Required: Channing uses a two-stage cost allocation system, It uses direct-material costs to allocate direct-materials related overhead and direct-labor costs to allocate direct-labor related overhead costs. a. Compute the direct-material related overhead rate for next month. b. Compute the direct-labor related overhead rate for next month. c. What is the total overhead allocated to product A1 next month

Answer 1

Channing Corporation

a. The direct-material related overhead rate = $0.22

b. The direct-labor related overhead rate = $0.22

c. The total overhead allocated to product A1 next month = $26,100

Step-by-step explanation:

a) Data and Calculations:

Products A1 B2 Total

Total Revenue $ 170,000 $ 510,000 $ 680,000

Direct material 65,000 130,000 195,000

Direct labor 54,000 128,250 182,250

Overhead:

Direct-material related 42,900

Direct-labor related 40,095

Total overhead $82,995

a. Direct-material related overhead rate:

Overhead = $42,900

Total direct materials costs = $195,000

Overhead rate = $42,900/$195,000 = $0.22

b. Direct-labor related overhead rate:

Overhead = $40,095

Total direct labor costs = $182,250

Overhead rate = $40,095/$182,250 = $0.22

c. Total overhead allocated to product A1:

Direct materials related overhead = $14,300 ($0.22 * $65,000)

Direct labor related overhead = 11,800 ($0.22 * $54,000)

Total overhead allocated = $26,100