Archangel Manufacturing uses a predetermined overhead allocation rate based on a percentage of direct labor costs.The following are the details of production during the year: Calculate the amount of manufacturing overhead costs allocated to production.

Question

Archangel Manufacturing uses a predetermined overhead allocation rate based on a percentage of direct labor costs.The following are the details of production during the year:  Calculate the amount of manufacturing overhead costs allocated to production.

Quizplus · Accepted Answer

The predetermined overhead allocation rate is calculated as follows:

Estimated manufacturing overhead costs / Estimated total direct labor costs

= $580,000 / $435,000

= 1.3333

Thus, for every $1 of direct labor costs incurred, $1.3333 of manufacturing overhead costs are allocated.

Total direct labor costs for the year are:

$50 x 6,300 = $315,000

Therefore, manufacturing overhead costs allocated to production are:

$315,000 x 1.3333 = $420,825

However, we are given that actual manufacturing overhead costs for the year are $580,000. This means there was overallocated overhead, since the allocated amount ($420,825) was less than the actual amount ($580,000).

To find the amount of overhead allocated to production, we must subtract the amount of overallocated overhead:

$420,825 - ($580,000 - $524,800) = $144,800

Therefore, the answer is (C) $144,800.

Archangel Manufacturing Uses a Predetermined Overhead Allocation Rate Based on a Percentage