Dragon Fire Hot Sauce makes two types of hot sauces-meek and mild. Budgeted information for the two flavors appears below: $$\begin{array} { l r r }
& { \text { Meek } } & \text { Mild } \
\text { Sales } & \$ 600,000 & \$ 400,000 \
\text { Direct materials } & \$ 100,000 & \$ 120,000 \
\text { Direct labor cost } & \$ 108,000 & \$ 180,000 \
\text { Labor hourly cost } & \$ 12.00 & \$ 12.000
\end{array}$$ 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 cost incurred. How much overhead is assigned to Mild?

Question

Dragon Fire Hot Sauce makes two types of hot sauces-meek and mild. Budgeted information for the two flavors appears below: $$\begin{array} { l r r } 
& { \text { Meek } } & \text { Mild } \
\text { Sales } & \$ 600,000 & \$ 400,000 \
\text { Direct materials } & \$ 100,000 & \$ 120,000 \
\text { Direct labor cost } & \$ 108,000 & \$ 180,000 \
\text { Labor hourly cost } & \$ 12.00 & \$ 12.000
\end{array}$$ 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 cost incurred. How much overhead is assigned to Mild?

Quizplus · Accepted Answer

The overhead is allocated based on labor cost. Mild's labor cost is $180,000 out of a total of $288,000 ($108,000 + $180,000). The overhead assigned to Mild is ($180,000 / $288,000) * $345,600 = $216,000.

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