Question

Milan Manufacturing Company has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming​ year: Cost Pool Overhead Costs Cost driver Activity level Supervision of direct labor ​$539,000 Direct labor minus hours ​920,000 Machine maintenance ​$120,000 Machineminushours ​1,000,000 Facility rent ​$215,000 Square feet of area ​160,000 Total overhead costs ​$874,000 The accounting records show the Mossman Job consumed the following​ resources: Cost driver Actual level Direct labor minushours 300 Machineminushours ​1,675 Square feet of area 70 If direct laborminushours are considered the only overhead cost​ driver, what is the single cost driver rate for​ Milan

Answer 1

$2,913.33 per labour hour

Step-by-step explanation:

Absorption costing charges overheads to production units using volume-related bases while activity based costing uses different cost drivers

If the labor hour is considered the only cost driver, then the overhead would be absorbed using labor hours as the basis of allocating overhead.

Therefore, the overheads absorption rate

Overhead per labour = Total overheads/total labour hours

= $874,000/300 hours

= $2,913.33 per labour hour