Crinkle Cut Clothes Company manufactures two products CC1 and CC2. Current direct material and direct labor costs are detailed below. Next year the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $338,250. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $28 per hour and the company expects to manufacture 22,000 units of CC1 and 91,000 units of CC2 next year.

$\begin{array}{ccc}
& \text { Direct } & \text { Direct } \
& \text { Material } & \text { Labor Dollars } \
& \text { per Unit } & \text { per Unit } \
\text { CC1 } & \$ 37.10& \$ 22.40 \
\mathrm{CC} 2 & \$ 25.20 & \$ 15.40
\end{array}$ Compute the plantwide overhead rate for next year.
A) $28.00 per DLH.
B) $37.80 per DLH.
C) $1.35 per DLH.
D) $5.00 per DLH.
E) $0.20 per DLH.

Question

Crinkle Cut Clothes Company manufactures two products CC1 and CC2. Current direct material and direct labor costs are detailed below. Next year the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $338,250. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $28 per hour and the company expects to manufacture 22,000 units of CC1 and 91,000 units of CC2 next year.

\begin{array}{ccc} & \text { Direct } & \text { Direct } \\& \text { Material } & \text { Labor Dollars } \\& \text { per Unit } & \text { per Unit } \\\text { CC1 } & \$ 37.10& \$ 22.40 \\\mathrm{CC} 2 & \$ 25.20 & \$ 15.40\end{array}

Compute the plantwide overhead rate for next year.

$\begin{array}{ccc} 
& \text { Direct } & \text { Direct } \
& \text { Material } & \text { Labor Dollars } \
& \text { per Unit } & \text { per Unit } \
\text { CC1 } & \$ 37.10& \$ 22.40 \
\mathrm{CC} 2 & \$ 25.20 & \$ 15.40
\end{array}$ Compute the plantwide overhead rate for next year.
A) $28.00 per DLH.
B) $37.80 per DLH.
C) $1.35 per DLH.
D) $5.00 per DLH.
E) $0.20 per DLH.

Quizplus · Accepted Answer

The plantwide overhead rate is calculated by dividing the total estimated overhead by the total estimated direct labor hours. First, calculate the direct labor hours for each product: CC1: $22.40 / $28 per hour = 0.8 hours per unit. CC2: $15.40 / $28 per hour = 0.55 hours per unit. Total direct labor hours = (22,000 units * 0.8 hours) + (91,000 units * 0.55 hours) = 17,600 + 50,050 = 67,650 hours. Overhead rate = $338,250 / 67,650 hours = $5.00 per DLH.

Crinkle Cut Clothes Company Manufactures Two Products CC1 and CC2