Use the following estimates to calculate the overhead allocation rate for the production department. Use direct labour hour as the allocation base: $$\begin{array} { | l | l | }
\hline & \text { Production Department } \
\hline \text { Overhead } & \$ 500000 \
\hline \text { Direct Labour Cost } & \$ 250000 \
\hline \text { Direct Labour Hours } & 12500 \
\hline
\end{array}$$
A) $2 per direct labour dollar
B) $0.50 per direct labour dollar
C) $40 per direct labour hour
D) $0.025 per direct labour hour

Question

Use the following estimates to calculate the overhead allocation rate for the production department. Use direct labour hour as the allocation base: $$\begin{array} { | l | l | } 
\hline & \text { Production Department } \
\hline \text { Overhead } & \$ 500000 \
\hline \text { Direct Labour Cost } & \$ 250000 \
\hline \text { Direct Labour Hours } & 12500 \
\hline
\end{array}$$
A) $2 per direct labour dollar
B) $0.50 per direct labour dollar
C) $40 per direct labour hour
D) $0.025 per direct labour hour

Quizplus · Accepted Answer

The overhead allocation rate based on direct labour hours is calculated by dividing the total overhead by the total direct labour hours. So, $500,000 / 12,500 hours = $40 per direct labour hour.

Use the Following Estimates to Calculate the Overhead Allocation Rate