Lefave, Inc., manufactures and sells two products: Product Q1 and Product D5. Da

Question

Lefave, Inc., manufactures and sells two products: Product Q1 and Product D5. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the predetermined overhead rate would be closest to:

Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours Product Q1 3000? 7.0? 21,000? Product D5 1400? 4.0? 5600? Total direct labor-hours 26,600?

Explanation / Answer

Solution:

Estimated total overhead = $466,216

Estimated direct labor hours = 26600 hours

Predetermined overhead rate based on direct labor hours = Estimated total overhead / Estimated direct labor hours

= $466,216 / 26600 = $17.53 per direct labor hour

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