Malone Company sells two products Big X and Little X. Current direct material an

Question

Malone Company sells two products Big X and Little X. Current direct material and direct labor costs are detailed below. Next year, the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $510,000. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $20 per hour and the company expects to manufacture 15,000 units of Big X and 18,000 units of Little X next year.

Using the information above and below, determine Malone's plantwide overhead rate based on direct labor hour for next year.  
                                                       

   

   

   

Direct Material per Unit

   

   

Direct Labor Dollars per Unit

   

   

Big X

   

   

$5

   

   

$18

   

   

Little X

   

   

$3

   

   

$12

   

   

   

   

Direct Material per Unit

   

   

Direct Labor Dollars per Unit

   

   

Big X

   

   

$5

   

   

$18

   

   

Little X

   

   

$3

   

   

$12

   

Explanation / Answer

Direct labor cost = $20 per hours

Big X direct labor cost per unit = $18 hence $18/20 = .9 hrs per unit required

LIL X direct labor cost per unit = $12 hence per hrs required for one unit = 12/20 = .6 hrs

total direct labor hours

Planwide overhead rate = $510,000/ 24,300

                                     = $20.99

Big X 15,000 * .9 13,500 LIL X 18,000*.6 10,800 total hours 24,300 hours

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