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

Question

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

Quizplus · Accepted Answer

If Nadal Company uses direct labor cost as the allocation base, the allocation rate is calculated as follows: 
Total manufacturing overhead / Total direct labor cost = $871,568 / $2,500,000 = $0.3486 per $1 of direct labor cost

Using this rate, the allocated manufacturing overhead would be: 
$870,000 x $0.3486 = $303,464

Therefore, the correct answer is B, $409,464.

Nadal Company Is Debating the Use of Direct Labor Cost