Question

The Osborne Company manufactures products in two departments: Mixing and Packaging. The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are &650,000, and estimated direct labor hours are 300,000. In October, the company incurred 25,000 direct labor hours

Requirement:

1. Compute the predetermined overhead allocation rate. Round to two decimal places.

2. Determine the amount of overhead allocated in October

Answer 1

The predetermined overhead allocation rate is $2.17 and the amount of overhead allocated in October is $54,250.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Estimated overhead costs = $650,000

Estimated direct labor hours = 300,000

Direct labor hours in October = 25,000

1. So, we can calculate predetermined overhead allocation rate by using the following formula:

Predetermined overhead allocation rate = Estimated overhead costs ÷ Estimated direct labor hours

= $650,000 ÷ 300,000

= $2.17

2. Now we can calculate the amount of overhead allocated in October as follows:

Amount of overhead allocated in October = Direct labor hours in October × Predetermined overhead allocation rate

=25000 × $2.17

= $54,250

Hence, the predetermined overhead allocation rate is $2.17 and the amount of overhead allocated in October is $54,250.