Question

Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information.

Car Truck
Estimated wheels produced 40,000 10,000
Direct labor hours per wheel 1 3

Total estimated overhead costs for the two product lines are $770,000.

Required:
a. Calculate overhead rate.
b. Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs.

Answer 1

A) Direct labor hrs for car wheels = estimated wheels *direct labor per wheel  

40,000 *1hr = 40,000      

   

Direct labor hrs for Truck      

10,000 * 3hr= 30,000      

   

total direct labor hrs 40,000+30,000 = 70,000  hrs

Overhead rate is total est oh cost/ total direct labor hrs    

770,000/70,000= 11.00    

B) Car truck wheels 40,000*11 =440,000

Truck wheels 10,000*11=110,000