Question

Hearthstone, Inc., a home healthcare​ firm, has been using a single predetermined overhead allocation rate with direct labor hours as the allocation base to allocate overhead costs. The direct labor rate is​ $200 per hour. Clients are billed at​ 190% of direct labor cost. Sofi​ Acosta, the president of​ Hearthstone, decided to develop an ABC system to more accurately allocate the indirect costs. She identified two activities related to the total indirect costslong dashtravel and information technology​ (IT) support. The other relevant details are given​ below: Activity Allocation base Estimated costs Estimated quantity of allocation base Travel Miles driven ​$85,000 ​3,000 miles IT Support Direct labor hours ​60,000 ​1,300 DLH Total ​$145,000The predetermined overhead allocation rate for travel will be? A. $49.17 per mile B. $26.86 per mile C. $78.33 per mile D. $43.71 per mile

Answer 1

Correct answer is B.

$26.86 per mile

Step-by-step explanation:

Total estimated cost for travel = 94000

Total miles driven = 3500

Overhead allocation rate = total estimated cost/total miles

= 94000/3500

=26.85714 or 26.86