Zimmerman Company manufactures two products, Board 12 and Case 165. Zimmerman's overhead costs consist of setting up machines, $2,400,000; machining, $5,400,000; and inspecting, $1,800,000. Information on the two products is: $\begin{array}{lrr}&\text { Board } 12&\text { Case } 165\
\text { Direct labor hours } & 15,000 & 25,000 \
\text { Machine setups } & 600 & 400 \
\text { Machine hours } & 24,000 & 26,000 \
\text { Inspections } & 800 & 700
\end{array}$ Overhead applied to Board 12 using traditional costing using direct labor hours is

Question

Quizplus · Accepted Answer

Traditional costing allocates overhead based on direct labor hours. The total direct labor hours are 15,000 for Board 12 + 25,000 for Case 165 = 40,000 hours. The total overhead is $2,400,000 (setting up machines) + $5,400,000 (machining) + $1,800,000 (inspecting) = $9,600,000. The overhead rate per direct labor hour is $9,600,000 / 40,000 hours = $240 per hour. For Board 12, with 15,000 direct labor hours, the overhead applied is 15,000 hours * $240/hour = $3,600,000.

Zimmerman Company Manufactures Two Products, Board 12 and Case 165