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 hours.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?

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Quizplus · Accepted Answer

Overhead is allocated based on direct labor hours. The total overhead cost is $864,000 and the total direct labor hours are 39,273. Therefore, the overhead rate is $864,000 / 39,273 = $22 per direct labor hour. The size 8 Beachcomber shoes required 4,200 direct labor hours, so the overhead assigned to this job is 4,200 * $22 = $92,400.

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