Question

Dade Metals manufactures patio furniture. The company budgets overhead cost of $480,000 for the year. It also budgets 24,000 machine hours and 8,000 direct labor hours.

Required:
1. Compute the plantwide overhead rate, assuming the company allocates overhead based on (a) machine hours and (b) direct labor hours.
2. Job 121 uses 160 machine hours and 150 direct labor hours. Allocate overhead to Job 121 assuming overhead is allocated based on machine hours.
3. Job 121 uses 160 machine hours and 150 direct labor hours. Allocate overhead to Job 121 assuming overhead is allocated based on direct labor hours.

Answer 1

1. The computation of the plantwide overhead rate for Dade Metals is as follows, based on:

a) machine hours = $20 per machine hour ($480,000/24,000).

b) direct labor hours = $60 per direct labor hour ($480,000/8,000).

2. The allocation of overhead to Job 121 using machine hours is as follows:

Job 121 overhead cost = $3,200 ($60 x 160).

3. The allocation of overhead to Job 121 using direct labor hours is as follows:

Job 121 overhead cost = $9,000 ($60 x 150).

What is an overhead allocation basis?

An overhead allocation basis is a base that overhead costs are allocated to units of production based on usage or consumption.

Overhead allocation is important in cost accounting to determine the cost of a product.

Data and Calculations:

Budgeted overhead for the year = $480,000

Budgeted machine hours = 24,000 MH

Budgeted direct labor hours = 8,000 DLH

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