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 Actual direct labor cost Estimated manufacturing overhead costs Actual manufacturing overhead costs Estimated direct labor hours Actual direct labor hours $500,200 $466,000 $425,100 $350.800 250,300 232,600 If Quick Step Company uses direct labor hours as the allocation base, what would the allocated manufacturing overhead be for the year? (Round intermediary calculations to the nearest cent.) O A. $350,800 B. $395,420 оооо C. $325,993 OD. $425,100

Answer 1

Since Quick Step Company is using labor hours as the allocation base, we will use the estimated labor hours to calculate our allocation rate.

We will proceed as follows -

In order to calculate the allocated manufacturing overhead for the year, first we will see what is the expected manufacturing overhead for the year.

By the question details it is clear that Estimated Manufacturing Overhead costs for the year are - USD 425,100

Now we need a base, through which we need to determine the rate of overhead per labor unit.

Estimated Labor Hours for the year 250,300 hours.

Dividing Estimates Manufacturing Overhead / Estimated Labor hours

It will give the overhead allocation rate of per hour.

Solving ---

USD 425,100 / 250,300 hrs

we get - 1.7 USD per hour

Now for the year we have our actual hours are 232,600 hrs.

We can now easily find the allocated manufacturing overhead by multiplying the determined rate with the actual labor hours -

therefore, 232,600 hrs * 1.7 USD per hr

we get

= USD 395,420

So our answer for the above MCQ is Option B i.e. USD 395,420