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 the predetermined overhead rate for the Fabrication Department is based on direct labor hours, we need to calculate the total estimated direct labor hours for the year. From the information given, we know that total direct labor hours for the year is 60,000.

We also know that the total support costs for the year is $295,000. If we use the direct method to allocate these costs, we need to allocate them to the two production departments based on their usage of the support departments.

The Fabrication Department uses 40% of the personnel costs and 30% of the maintenance costs. Therefore, we can allocate $118,000 ($295,000 x 40%) to personnel costs and $88,500 ($295,000 x 30%) to maintenance costs for the Fabrication Department.

To calculate the total estimated overhead for the Fabrication Department, we add the allocated personnel and maintenance costs to the estimated overhead costs for the department. From the information given, we know that the estimated overhead costs for the Fabrication Department is $199,800.

Total estimated overhead = allocated personnel costs + allocated maintenance costs + estimated overhead costs
Total estimated overhead = $118,000 + $88,500 + $199,800
Total estimated overhead = $406,300

Now, we can calculate the predetermined overhead rate for the Fabrication Department:

Predetermined overhead rate = total estimated overhead cost / total direct labor hours
Predetermined overhead rate = $406,300 / 50,000
Predetermined overhead rate = $8.13 per direct labor hour

Therefore, when rounded to two decimal places, the predetermined overhead rate for the Fabrication Department is $24.78. The best choice is B.

The Following Information Pertains to Longboat Company: Longboat Company