Lefave, Inc., manufactures and sells two products: Product Q1 and Product D5.Data concerning the expected production of each product and the expected total direct labor-hours (DLHs)required to produce that output appear below: The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the predetermined overhead rate would be closest to:

Question

Lefave, Inc., manufactures and sells two products: Product Q1 and Product D5.Data concerning the expected production of each product and the expected total direct labor-hours (DLHs)required to produce that output appear below:  The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:  If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the predetermined overhead rate would be closest to:

Quizplus · Accepted Answer

To calculate the predetermined overhead rate using the traditional costing method, we need to divide the estimated total overhead costs by the estimated total direct labor-hours:

$9,018,000 / 128,850 DLHs = $70.04 per DLH

Therefore, the closest option is B) $70.04 per DLH. Predetermined overhead rate = Estimated total overhead ÷ Total direct labor-hours
= $406,216 ÷ 5,800 DLHs = $70.04 per DLH (rounded)