Mudd Shoe Company has expected overhead costs of $864,000.The majority of the overhead costs are incurred providing production support to the direct labor force.Direct labor rates vary from $12 to $21 per hour, and more complex tasks are assigned to more skilled workers who have higher pay rates.Management projects direct labor costs to be $540,000 with 39,273 direct labor hours.More complex tasks require proportionally more support than do the less complex tasks.
Each model/size of shoe is produced in a separate production batch and constitutes a job.Mudd allocates overhead based on direct labor cost.During the year, the company produced 6,600 pairs of the size 8 Beachcomber shoes.A total of 4,200 direct labor hours, costing $54,600, were assigned to the job.How much overhead will be assigned to the size 8 Beachcomber shoes?

Question

Quizplus · Accepted Answer

First, we need to calculate the predetermined overhead rate:
Predetermined overhead rate = Expected overhead costs ÷ Direct labor costs
Predetermined overhead rate = $864,000 ÷ $540,000
Predetermined overhead rate = $1.60 per direct labor dollar

Next, we can calculate the amount of overhead assigned to the size 8 Beachcomber shoes:
Overhead assigned = Predetermined overhead rate x Direct labor cost assigned to the job
Overhead assigned = $1.60 x $54,600
Overhead assigned = $87,360

Therefore, the answer is C.

Mudd Shoe Company Has Expected Overhead Costs of $864,000