Question

The following data relates to Lead Company's estimated amounts for next year. Estimated: Department 1 Department...

The following data relates to Lead Company's estimated amounts for next year.
Estimated: Department 1 Department 2
  Manufacturing overhead costs $1,499,000 $3,401,000
  Direct hours     680,000 DLH 900,000 DLH
  Machine hours 103,000 MH     35,000 MH


What is the company's plantwide overhead rate if direct labor hours are the allocation base?
(Round to two decimal places)
Business   Accounting   
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Answer #1

Calculation of company's plantwide overhead rate is as follows:

Company's plantwide overhead rate = Total Manufacturing overheads / Total Direct labor hours

= $ 4,900,000 / 1,580,000

= $ 3.10 (Rounded off to two decimal places as per question specification)

Thus, Company's plantwide overhead rate is $ 3.10 per labor hour

Working note:

1. Calculation of Total Manufacturing overheads:

Total Manufacturing overheads = Manufacturing overheads of Department 1 + Manufacturing overheads of Department 2

= $ 1,499,000 + $ 3,401,000

= $ 4,900,000

2. Calculation of Total Direct labor hours:

Total Direct labor hours = Direct labor hours of Department 1 + Direct labor hours of Department 2

= 680,000 + 900,000

= 1,580,000 labor hours

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