Quick Step 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 Quick Step Company uses direct labor cost as the allocation base, what would the allocated manufacturing overhead be for the year?

Question

Quick Step 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 Quick Step Company uses direct labor cost as the allocation base, what would the allocated manufacturing overhead be for the year?

Quizplus · Accepted Answer

To calculate allocated manufacturing overhead using direct labor cost, we need to divide the total manufacturing overhead of $409,376 by the total direct labor cost of $1,197,600 (as given in the table), and then multiply the result by the direct labor cost of the product.

Allocated Manufacturing Overhead = (Total Manufacturing Overhead / Total Direct Labor Cost) x Direct Labor Cost of product
                    = ($409,376 / $1,197,600) x $140,000
                    = $48 x $140,000
                    = $6,720

Therefore, the allocated manufacturing overhead for the year using direct labor cost as the allocation base would be $6,720 per product.

Quick Step Company Is Debating the Use of Direct Labor