Dragon Fire Hot Sauce makes two types of hot sauces-meek and mild. Budgeted information for the two flavors appears below: $$\begin{array} { l r r }
& \text { Meek } & \text { Mild } \
\text { Sales } & \$ 600,000 & \$ 400,000 \
\text { Direct materials } & \$ 100,000 & \$ 120,000 \
\text { Direct labor cost } & \$ 108,000 & \$ 180,000 \
\text { Labor hourly cost } & \$ 12.00 & \$ 12.00
\end{array}$$ 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?

Question

Dragon Fire Hot Sauce makes two types of hot sauces-meek and mild. Budgeted information for the two flavors appears below: $$\begin{array} { l r r } 
& \text { Meek } & \text { Mild } \
\text { Sales } & \$ 600,000 & \$ 400,000 \
\text { Direct materials } & \$ 100,000 & \$ 120,000 \
\text { Direct labor cost } & \$ 108,000 & \$ 180,000 \
\text { Labor hourly cost } & \$ 12.00 & \$ 12.00
\end{array}$$ 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?

Quizplus · Accepted Answer

Overhead application rate = Total overhead cost / Total labor hours workedTotal labor hours worked = Direct labor cost / Labor hourly costTotal labor hours worked = ($108,000 + $180,000) / $12.00 = 23,400 hoursOverhead application rate = $345,600 / 23,400 hours = $14.40 per hour

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