Dragon Fire Hot Sauce makes two types of hot sauces-meek and mild.Budgeted information for the two flavors appears below: $\begin{array}{lrr}&\text { Meek }&\text { Mild }\
\text { Sales } & \$ 600,000 & \$ 400,000 \
\text { Direct materials } & \$ 100,000 & \$ 120,000 \
\text { Direct labor cost } & \$ 108,000 & \$ 180,000 \
\text { Labor hourly cost } & \$ 12,00 & \$ 12,00
\end{array}$ The company estimates it will incur $345,600 in overhead costs for the period.Dragon Fire allocates overhead cost to products based on the labor hours worked on each product.What is the overhead application rate to be used when allocating to Meek?
A)$14.40
B)$1.20
C)$3.20
D)None of these answer choices are correct.

Question

Quizplus · Accepted Answer

Overhead application rate = Total overhead cost / Total labor hoursTotal labor hours = (Direct labor cost / Labor hourly cost) for Meek + (Direct labor cost / Labor hourly cost) for Mild= (108,000 / 12) + (180,000 / 12)= 9,000 + 15,000= 24,000 hoursOverhead application rate = 345,600 / 24,000= $14.40 per labor hour

Dragon Fire Hot Sauce Makes Two Types of Hot Sauces-Meek