Johnstone Company manufactures two products, Board 12 and Case 165.Johnstone's overhead costs consist of setting up machines, $1,600,000; machining, $3,600,000; and inspecting, $1,200,000.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. Total direct labor hours = 15,000 + 25,000 = 40,000. Overhead rate = Total overhead / Total direct labor hours = ($1,600,000 + $3,600,000 + $1,200,000) / 40,000 = $6,400,000 / 40,000 = $160 per direct labor hour. Overhead applied to Board 12 = 15,000 hours * $160 = $2,400,000.

Johnstone Company Manufactures Two Products, Board 12 and Case 165