Question

Bates Company makes two products. Product X requires 8,000 hours of labor, and Product Y requires 6,000 hours of labor. Bates undertook an automation program that reduced the consumption of labor required by Product X to only 4,000 hours of labor. Product Y was not affected by the automation process. Overhead cost prior to the automation totaled $15,400. After automation, overhead cost amounted to $35,000. Assuming Bates uses direct labor hours as a companywide allocation base before and after the automation, the amount of overhead cost allocated to:

Answer 1

Product Y would be $6,600 prior to automation and $26,400 after automation

Step-by-step explanation:

Calculation to determine the amount of overhead cost allocated to:

Predetermined overhead rate prior to automation = Estimated overhead / Estimated direct labor hours

Predetermined overhead rate prior to automation=$15,400/(8,000+6,000)

Predetermined overhead rate prior to automation= $15,400 / 14,000

Predetermined overhead rate prior to automation= $1.1per hour

Overhead allocated to product X prior to automation = 8000*$1.1

Overhead allocated to product X prior to automation= $8,800

Overhead allocated to product Y prior to automation = 6000*$1.1

Overhead allocated to product Y prior to automation= $6,600

Predetermined overhead rate after automation = Estimated overhead / Estimated direct labor hours

Predetermined overhead rate after automation= $35,000 / 8000

Predetermined overhead rate after automation=$4.4per hour

Overhead allocated to product X after automation = 4000*$4.4

Overhead allocated to product X after automation = $17,600

Overhead allocated to product Y after automation = 6000*$4.4

Overhead allocated to product Y after automation= $26,400

Therefore Assuming Bates uses direct labor hours as a companywide allocation base before and after the automation, the amount of overhead cost allocated to:Product Y would be $6,600 prior to automation and $26,400 after automation