Question

Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours...

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 4,900 units of Product A requiring a total of 790 labor hours and 2,400 units of Product B requiring a total of 190 labor hours. What allocation rate should be used if the company incurs overhead costs of $18,620?

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Answer #1
Answer:
Allocation rate
           = Total Manufacturing Overheads / Total Direct labor hours
           =    $18,620 / ( 790 + 190 )
           =    $18,620 / 980 DLH
           =    $19 per labor hour
Allocation overhead rate    =    $19 per labor hour
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