Question

Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 5,800 units of Product A requiring a total of 880 labor hours and 3,300 units of Product B requiring a total of 280 labor hours. What allocation rate should be used if the company incurs overhead costs of $32,480? Multiple Choice $28 per labor hour $3.57 per unit $36.91 per labor hour for Product A and $116 per labor hour for Product B $28 per unit

Answer 1

$28 per labor hour

Step-by-step explanation:

The computation of the overhead allocation rate is shown below:

= Total overhead cost incurred ÷ Total labor hours

where,

Total overhead cost incurred is $32,480

And, the total labor hours is

= 880 labor hours + 280 labor hours

= 1,160 labor hours

So by placing this values, the overhead allocation rate is

= $32,480 ÷ 1,160 labor hours

= $28 per labor hour

By dividing the total overhead cost incurred with the total labor hours we can get the overhead allocation rate