Federer Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year: If Federer Company uses direct labor cost as the allocation base, what would the allocated manufacturing overhead be for the year?

Question

Federer Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the most recent year:  If Federer Company uses direct labor cost as the allocation base, what would the allocated manufacturing overhead be for the year?

Quizplus · Accepted Answer

To calculate the allocated manufacturing overhead using direct labor cost as the allocation base, we need to first calculate the predetermined overhead rate:

Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total direct labor cost 
= $1,581,000 / $18,850,000 
= $0.084

Next, we use this rate to allocate overhead to each product based on its direct labor cost:

Allocated manufacturing overhead = Predetermined overhead rate x Actual direct labor cost 
= $0.084 x $4,700,000 
= $395,250

Therefore, the allocated manufacturing overhead using direct labor cost as the allocation base would be $395,250.

Federer Company Is Debating the Use of Direct Labor Cost