Question

The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments-Fabrication and Assembly. Data for the products and departments are listed below.

Product Number of Units Labor Hours Per Unit Machine Hours Per Unit
Rings 1,000 4 6
Dings 2,000 3 9
All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $90,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $105,000.
The Aleutian Company uses departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours.
What is the Assembly Department overhead rate per labor hour?
A. $10.50
B. $19.50
C. $3.75
D. $4.38

Answer 1

Option A is correct

OAR = $10.5 per hour

Step-by-step explanation:

Overhead absorption rate(OAR) = Estimated overhead/Estimated labour hours

Estimated labour hours = (4×1,000) + (3×2,000)=10,000 hours

OAR = $105,000/10,000 hours = $10.5 per hour

OAR = $10.5 per hour