Question

Merone Company allocates materials handling cost to the company's two products using the below data:

	Modular Homes	Prefab Barns
Total expected units produced	5,500	8,500
Total expected material moves	550	150
Expected direct labor-hours per unit	750	250

The total materials handling cost for the year is expected to be $250,000.

If the materials handling cost is allocated on the basis of direct labor-hours, the total materials handling cost allocated to the prefab barns is closest to: (Round your intermediate calculations to 2 decimal places.)

Answer 1

Total direct labor hours for the organization

= Direct labor hours of modular homes + Direct labor hours of prefab barns

= Number of units x Expected labor hours per unit

= 5,500 x 750 + 8,500 x 250

= 4,125,000 + 2,125,000

= 6,250,000 labor hours

Overhead allocation rate

= Budgeted overhead / Budgeted basis of absorption

= Material handling costs / Labor hours

= $250,000 / 6,250,000

= $0.04 per labor hour

So, the total materials handling cost allocated to the prefab barns

= Total labor hours of prefab barns x Overhead allocation rate

= 2,125,000 x $0.04 per labor hour

= $85,000