Quick Step Company is debating the use of direct labor cost or direct labor hour
ID: 2342286 • Letter: Q
Question
Quick Step Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year:
Estimated direct labor cost
$ 508 comma 000$508,000
Actual direct labor cost
$ 465 comma 000$465,000
Estimated manufacturing overhead costs
$ 436 comma 880$436,880
Actual manufacturing overhead costs
$ 350 comma 100$350,100
Estimated direct labor hours
250 comma 800250,800
Actual direct labor hours
233 comma 000233,000
If Quick Step Company uses direct labor cost as the allocation base, what would the allocated manufacturing overhead be for the year?
A.
$ 720 comma 366$720,366
B.
$ 399 comma 900$399,900
C.
$ 436 comma 880$436,880
D.
$ 350 comma 100$350,100
Estimated direct labor cost
$ 508 comma 000$508,000
Actual direct labor cost
$ 465 comma 000$465,000
Estimated manufacturing overhead costs
$ 436 comma 880$436,880
Actual manufacturing overhead costs
$ 350 comma 100$350,100
Estimated direct labor hours
250 comma 800250,800
Actual direct labor hours
233 comma 000233,000
Explanation / Answer
Direct labor as % of Predetermined Overhead Rate = Estimated Manufacured Overhead /Estimated Direct Labor Cost
= 436880/508000 = 86%
Overhead Applied = Actual Labor Cost x percent of Overhead = 465000 x 86% = $ 399,900
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