Allocation of Overhead - - Groupon Corporation expects to incur $450,000 in manu

Question

Allocation of Overhead - - Groupon Corporation expects to incur $450,000 in manufacturing overhead costs during 2016. Other budget information follows: 1 Use direct labor hours as the cost driver to compute the allocation rate. Determine the amount of budgeted overhead cost for each department. 2 Use machine hours as the cost driver to compute the allocation rate. Determine the amount of budgeted overhead cost for each department. 3 Assume that Department A manufactured a product that required 150 direct labor hours and 85 machine hours. If overhead is allocated based on direct labor hours, how much overhead would be allocated to this product? 4 Assume that Department A manufactured a product that required 150 direct labor hours and 85 machine hours. If overhead is allocated based on machine hours, how much overhead would be allocated to this product?

Explanation / Answer

MANUFACTURING OVERHEAD COST         450,000 DEPARTMENTS A B C TOTAL DIRECT LABOR HOURS            10,000                          2,000                          8,000                   20,000 MACHINE HOURS              3,000                          5,000                          7,000                   15,000    1 ALLOCATION RATE BASED ON DIRECT LABOUR HOURS (PER HOUR)              22.50 (450000/20000) ALLOCATION (LABOR HOUR *22.50)         225,000                        45,000                     180,000                 450,000    2 ALLOCATION RATE BASED ON MACHINE HOURS (PER HOUR)                    30 (450000/15000) ALLOCATION (MACHINE HOUR*30)            90,000                      150,000                     210,000                 450,000    3 ALLOCATION = 150 HOURS X 22.50 PER HOUR              3,375    4 ALLOCATION = 85 HOURS X 30 PER HOUR              2,550

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