Figure 5-3. Mitchell's Softball Gloves Company estimated the following at the beginning of the year:
Mitchell uses departmental overhead rates.In the assembly department,direct labor hours are used to apply overhead.Machine hours are used to apply overhead in the testing department.
Actual data for August is as follows:
Refer to Figure 5-3.If Mitchell uses a plantwide overhead rate based on direct labor hours,instead of departmental rates,what is the predetermined overhead rate rounded to the nearest cent?

Question

Figure 5-3. Mitchell's Softball Gloves Company estimated the following at the beginning of the year:
 Mitchell uses departmental overhead rates.In the assembly department,direct labor hours are used to apply overhead.Machine hours are used to apply overhead in the testing department.
Actual data for August is as follows:
 Refer to Figure 5-3.If Mitchell uses a plantwide overhead rate based on direct labor hours,instead of departmental rates,what is the predetermined overhead rate rounded to the nearest cent?

Quizplus · Accepted Answer

To calculate the plantwide overhead rate based on direct labor hours, we need to divide the total estimated overhead by the total estimated direct labor hours. Using the data from Figure 5-3, we have:

Total estimated overhead = $1,080,000 + $720,000 = $1,800,000
Total estimated direct labor hours = 450,000 + 50,000 = 500,000

Plantwide overhead rate = Total estimated overhead / Total estimated direct labor hours
= $1,800,000 / 500,000
= $3.60 per direct labor hour

Rounded to the nearest cent, the answer is $4 per direct labor hour, which is choice C.