Question

Tidwell Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100000 for the year. Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity Ordering and Receiving Orders $ 130000 500 orders Machine Setup Setups 306000 450 setups Machining Machine hours 1537500 125000 MH Assembly Parts 1220000 1000000 parts Inspection Inspections 310000 500 inspections If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is

Answer 1

Answer:

35.035 rate per labour hour

Explanation:

We are asked for the traditional costing system:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

The manufacturing overhead will be the sum of each activity cost:

Ordering and Receiving Orders $     130,000

Machine Setup Setups                $   306,000

Machining Machine hours           $ 1,537,500

Assembly Parts                            $ 1,220,000

Inspections                                   $    310,000

Total Overhead:                          $ 3,503,500

Now we divide by the cost drive which is labour hours: 100,000

3,503,500 / 100,000 = 35.035 rate per labor hour