Hearthstone, Inc, a home healthcare firm, has been using a single predetermined

Question

Hearthstone, Inc, a home healthcare firm, has been using a single predetermined overhead allocation rate with direct labor hours as the allocation base to allocate overhead costs. The direct labor rate is $200 per hour. Clients are billed at 190% of direct labor cost. Sofi Acosta, the president of Hearthstone decided to develop an ABC system to more accurately alocate the indirect costs. She identified two activities related to the total indirect costs travel and information technology (IT) support. The other relevant details are given below Estimated Estimated quantity Activity Travel IT Support Total Allocation base Miles driven Direct labor hours costs 94,000 59,000 153.000 of allocation base 3,500 miles 1,200 DLH The predetermined overhead allocation rate for travel will be (Round O A. $49.17 per mile O B. $26.86 per mile O C. $78.33 per mile O D. $43.71 per mile

Explanation / Answer

Answer : B. $26.86

Explanation:

Total estimated cost for travel = 94000

Total miles driven = 3500

Overhead allocation rate = total estimated cost/total miles

= 94000/3500

=26.85714 or 26.86

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