Vittoria Corporation manufactures two products-Carts and Wheelbarrows.The annual production and sales of Carts is 2,000 units,while 1,800 units of Wheelbarrows are produced and sold.The company has traditionally used direct labour hours to allocate its overhead to products.Carts require 1.0 direct labour hours per unit,while Wheelbarrows require 0.5 direct labour hours per unit.The total estimated overhead for the period is $117,500.The company is looking at the possibility of changing to an activity-based costing system for its products.If the company used an activity-based costing system,it would have the following three activity cost pools:

The predetermined overhead allocation rate using the traditional costing system would be closest to

Question

Vittoria Corporation manufactures two products-Carts and Wheelbarrows.The annual production and sales of Carts is 2,000 units,while 1,800 units of Wheelbarrows are produced and sold.The company has traditionally used direct labour hours to allocate its overhead to products.Carts require 1.0 direct labour hours per unit,while Wheelbarrows require 0.5 direct labour hours per unit.The total estimated overhead for the period is $117,500.The company is looking at the possibility of changing to an activity-based costing system for its products.If the company used an activity-based costing system,it would have the following three activity cost pools:

The predetermined overhead allocation rate using the traditional costing system would be closest to

Quizplus · Accepted Answer

To calculate the predetermined overhead allocation rate using the traditional costing system, we need to divide the total estimated overhead by the total estimated direct labour hours.

Total estimated direct labour hours for Carts = 2,000 × 1.0 = 2,000 hours
Total estimated direct labour hours for Wheelbarrows = 1,800 × 0.5 = 900 hours

Total estimated direct labour hours = 2,000 + 900 = 2,900 hours

Predetermined overhead allocation rate using traditional costing system = Total estimated overhead / Total estimated direct labour hours 
= $117,500 / 2,900 = $40.52 per direct labour hour

Therefore, the closest option is A) $40.52 per direct labour hour.

Vittoria Corporation Manufactures Two Products-Carts and Wheelbarrows