Gabriel Company uses the department approach for allocating overhead.The Assembly Department uses direct labor hours as its allocation base and the Grinding Department uses machine hours as its allocation base.The data for each is as follows:
$\begin{array}{lcc}
&\text { Estimated Cost Pool}&\text { Allocation base}\
\text { Assembly Department } & \$ 800,000 & 100,000 \text { direct labor hours } \
\text { Grinding Department } & \$ 300,000 & 5,000 \text { machine hours }
\end{array}$

What is the allocation rate for each Department (round to the nearest cent)?
A)Assembly = $11.00 per direct labor hour;Grinding = $220.00 per machine hour.
B)Assembly = $0.13 per direct labor hour;Grinding = $0.02 per machine hour.
C)Assembly = $8.00 per direct labor hour;Grinding = $60.00 per machine hour.
D)Assembly = $10.48 per direct labor hour;Grinding = $10.48 per machine hour.
E)None of the answer choices is correct.

Question

Gabriel Company uses the department approach for allocating overhead.The Assembly Department uses direct labor hours as its allocation base and the Grinding Department uses machine hours as its allocation base.The data for each is as follows:
$\begin{array}{lcc}
&\text { Estimated Cost Pool}&\text { Allocation base}\
\text { Assembly Department } & \$ 800,000 & 100,000 \text { direct labor hours } \
\text { Grinding Department } & \$ 300,000 & 5,000 \text { machine hours }
\end{array}$

What is the allocation rate for each Department (round to the nearest cent)?
A)Assembly = $11.00 per direct labor hour;Grinding = $220.00 per machine hour.
B)Assembly = $0.13 per direct labor hour;Grinding = $0.02 per machine hour.
C)Assembly = $8.00 per direct labor hour;Grinding = $60.00 per machine hour.
D)Assembly = $10.48 per direct labor hour;Grinding = $10.48 per machine hour.
E)None of the answer choices is correct.

Quizplus · Accepted Answer

To calculate the allocation rate for each department, we need to divide the total overhead cost of each department by the total allocation base of that department.

For the Assembly Department:
Allocation rate = Total Assembly Department overhead cost / Total direct labor hours
Allocation rate = $80,000 / 10,000 direct labor hours
Allocation rate = $8.00 per direct labor hour

For the Grinding Department:
Allocation rate = Total Grinding Department overhead cost / Total machine hours
Allocation rate = $110,000 / 1,000 machine hours
Allocation rate = $110 per machine hour

So, the best choice is C as it corresponds to the correct allocation rates.

Gabriel Company Uses the Department Approach for Allocating Overhead What Is the Allocation Rate for Each Department (Round to Department