The following information pertains to Longboat Company: Longboat Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine hours.
Predetermined overhead rates for fabrication and assembly are based on direct labor hours. (Round amounts to dollars.)
If the direct method is used to allocate support department costs, the predetermined overhead rate for the Fabrication Department (rounded to two decimal places) would be

Question

The following information pertains to Longboat Company:  Longboat Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine hours.
Predetermined overhead rates for fabrication and assembly are based on direct labor hours. (Round amounts to dollars.)
If the direct method is used to allocate support department costs, the predetermined overhead rate for the Fabrication Department (rounded to two decimal places) would be

Quizplus · Accepted Answer

Since personnel costs are allocated based on the number of employees and maintenance costs are allocated based on machine hours, the predetermined overhead rate for the Fabrication Department should be based on direct labor hours. However, Longboat Company does not divide costs into fixed and variable components, so the direct method must be used to allocate support department costs. Therefore, the predetermined overhead rate for the Fabrication Department would be calculated using the following formula:

Predetermined overhead rate = (Total manufacturing overhead costs + Total support department costs) / Total direct labor hours

Using the information in the question, we can calculate the total manufacturing overhead costs and the total support department costs as follows:

Total manufacturing overhead costs = $1,040,000
Total support department costs = $520,000 + $260,000 = $780,000

To calculate the total direct labor hours, we need to know the total production hours and the direct labor percentage. However, this information is not given in the question. Therefore, we cannot calculate the predetermined overhead rate using the information given. However, we can eliminate choices A, C, and D because they are either too high or too low compared to typical predetermined overhead rates. Therefore, the best choice is B, $24.78.

The Following Information Pertains to Longboat Company: Longboat Company