Merrill, Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead costs. The plant manager believes it is time to refine the method of cost allocation and has the accounting department identify the primary production activities and their cost drivers:

The current traditional cost method allocates overhead costs based on direct labor hours using a rate of $ 400 per labor hour.
-What are the manufacturing overhead costs per remote control assuming the traditional cost method is used and a batch of 500 remote controls are produced? The batch requires 1,000 parts,10 direct labor hours,and 15 minutes of inspection time.
A)$4,000.00 per remote control
B)$0.50 per remote control
C)$4.00 per remote control
D)$8.00 per remote control

Question

Merrill, Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead costs. The plant manager believes it is time to refine the method of cost allocation and has the accounting department identify the primary production activities and their cost drivers:

The current traditional cost method allocates overhead costs based on direct labor hours using a rate of $ 400  per labor hour.
-What are the manufacturing overhead costs per remote control assuming the traditional cost method is used and a batch of 500 remote controls are produced? The batch requires 1,000 parts,10 direct labor hours,and 15 minutes of inspection time.
A)$4,000.00 per remote control 
B)$0.50 per remote control 
C)$4.00 per remote control 
D)$8.00 per remote control

Quizplus · Accepted Answer

According to the traditional cost method, manufacturing overhead costs per remote control = (total manufacturing overhead costs / total direct labor hours) x direct labor hours per remote control
Total manufacturing overhead costs = $400 x 10 hours = $4,000
Total direct labor hours per remote control = 10/500 = 0.02 
Manufacturing overhead costs per remote control = ($4,000 / 10) x 0.02 = $8.00 per remote control. Therefore, the correct answer is D.