Question

Tidwell Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100,000 for the year.Activity Cost Pool Cost Driver Est. Overhead Cost Driver ActivityOrdering and Receiving Orders $145,000 500 ordersMachine Setup Setups 319,500 450 setupsMachining Machine hours 1,575,000 125,000 MHAssembly Parts 1,250,000 1,000,000 partsInspection Inspections 325,000 500 inspectionsRequired:
1. If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is __________.
a. $10.b. $16.c. $36.d. $13.

Answer 1

Answer:

Option (c) is correct.

Explanation:

Given that,

Cost of ordering = $145,000

Cost of machine setup = $319,500

Cost of machining = $1,575,000

Cost of assembly = $1,250,000

Cost of inspection = $325,000

Total estimated overhead:

= Cost of ordering + Cost of machine setup + Cost of machining + Cost of assembly + Cost of inspection

= $145,000 + $319,500 + $1,575,000 + 1,250,000 + 325,000

= $3,614,500

Predetermined overhead rate:

= Total estimated overhead ÷ Estimated direct labor hours

= $3,614,500 ÷ 100,000 hours

= $36.14