Production workers for Kennedy Manufacturing Company provided 300 hours of labor
ID: 2501615 • Letter: P
Question
Production workers for Kennedy Manufacturing Company provided 300 hours of labor in January and 600 hours in February. Kennedy expects to use 5,000 hours of labor during the year. The rental fee for the manufacturing facility is $7,500 per month.
Based on this information, how much of the rental cost should be allocated to the products made in January and to those made in February?
Production workers for Soloman Manufacturing Company provided 3,000 hours of labor in January and 2,000 hours in February. The company, whose operation is labor intensive, expects to use 40,000 hours of labor during the year. Soloman paid a $96,000 annual premium on July 1 of the prior year for an insurance policy that covers the manufacturing facility for the following 12 months.
Based on this information, how much of the insurance cost should be allocated to the products made in January and to those made in February? (Do not round intermediate calculations.)
Production workers for Kennedy Manufacturing Company provided 300 hours of labor in January and 600 hours in February. Kennedy expects to use 5,000 hours of labor during the year. The rental fee for the manufacturing facility is $7,500 per month.
Explanation / Answer
Kennedy Manufacturing Company:
Overhead (rent) recovery rate = Total budgeted rental cost / budgeted labour hours =90,000 / 5,000 = $ 18 per labour hour.
In January, 300 hours of labor were provided. Hence rental cost allocated to products = 300 x18 = $ 5,400.
In February, 600 hours of labor were provided. Hence rental cost allocated to products = 600 x 18 =$ 10,800.
Soloman Manufacturing Company:
Overhead absorption rate for annual insurance expense = Annual insurance expense / Budgeted labor hours
96,000 / 40,000 = $ 2.40 per labor hour.
In January therefore insurance expense recovered was 3000 x 2.4 = $ 7,200
In February , insurance expense recovered is 2000 x 2.4 = $ 4,800
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