The following information pertains to Amon Schrock Corporation: Amon Schrock Corporation 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.
If the direct method is used to allocate support department costs, the predetermined overhead rate for the Fabrication Department (rounded to two decimal places) is

Question

The following information pertains to Amon Schrock Corporation:  Amon Schrock Corporation 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.
If the direct method is used to allocate support department costs, the predetermined overhead rate for the Fabrication Department (rounded to two decimal places) is

Quizplus · Accepted Answer

Since the predetermined overhead rates for fabrication and assembly are based on direct labor hours, it can be assumed that the support department costs are allocated based on direct labor hours as well. Thus, the predetermined overhead rate for the Fabrication Department can be calculated as follows:

Predetermined Overhead Rate = Total Budgeted Overhead / Total Budgeted Direct Labor Hours
= (Personnel Costs + Maintenance Costs) / Total Budgeted Direct Labor Hours
= [(Number of Employees x Employee Wages) + (Machine Hours x Maintenance Rate)] / Total Budgeted Direct Labor Hours

Without information on the total budgeted direct labor hours, it is not possible to calculate the exact predetermined overhead rate. However, based on the given choices, the closest answer is B ($24.78).

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