Question

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Angle Max Industries produces a product which goes through two operations, Assembly and Finishing, before it is ready to be shipped. Next year’s expected costs and activities are shown below.

	Assembly			Finishing
Direct labor hours		160,000	DLH		146,000	DLH
Machine hours		360,000	MH		82,800	MH
Overhead costs	$	360,000		$	525,600

Assume that the Assembly Department allocates overhead based on machine hours, and the Finishing Department allocates overhead based on direct labor hours. How much total overhead will be assigned to a product that requires 2 direct labor hour and 3.1 machine hours in the Assembly Department, and 4.0 direct labor hours and 0.6 machine hours in the Finishing Department?

Multiple Choice

$17.50.

$14.40.

$3.10.

$10.80.

Answer 1

Overhead rate of Assembly department (Based on machine hours) = Overhead costs / Machine hours = 360000 / 360000	1	Per MH
Overhead rate of Finishing department (Based on direct labor hours) = Overhead costs / Direct labor hours = 525600 / 146000	3.6	Per DLH
Total overhead assigned to the product = (3.1 MH * 1) + (4 DLH * 3.6)	17.50

Here while allocating overhead, Direct labor hours used in Assembly department and Machine hours used in Finishing department is to be ignored