Minon, Inc., manufactures and sells two products: Product J1 and Product E7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: The direct labor rate is $19.90 per DLH. The direct materials cost per unit for each product is given below: The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the predetermined overhead rate would be closest to:
A)$68.56 per DLH
B)$73.10 per DLH
C)$83.34 per DLH
D)$33.26 per DLH

Question

Minon, Inc., manufactures and sells two products: Product J1 and Product E7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:  The direct labor rate is $19.90 per DLH. The direct materials cost per unit for each product is given below:  The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:  If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the predetermined overhead rate would be closest to:
A)$68.56 per DLH 
B)$73.10 per DLH 
C)$83.34 per DLH 
D)$33.26 per DLH

Quizplus · Accepted Answer

To calculate the predetermined overhead rate using the traditional costing method, we need to divide the estimated overhead costs by the estimated total direct labor-hours.

Estimated total DLHs = 6,900 + 2,300 = 9,200

Estimated overhead costs = $700,000

Predetermined overhead rate = $700,000 / 9,200 DLHs = $76.09 per DLH

Therefore, the closest answer choice is B) $73.10 per DLH.