Question

Channing Corporation makes two products (A1 and B2) that require direct materials, direct labor, and overhead. The following data refer to operations expected for next month.
A1 B2 Total
Revenue $100,000 $ 300,000 $400,000
Direct material 30,000 60,000 90,000
Direct labor 40,000 95,000 135,000
Overhead:
Direct-material related 13,500
Direct-labor related 40,500
Required:
Channing uses a two-stage cost allocation system, It uses direct-material costs to allocate direct-materials related overhead and direct-labor costs to allocate direct-labor related overhead costs.
a. Compute the direct-material related overhead rate for next month.
b. Compute the direct-labor related overhead rate for next month.
c. What is the total overhead allocated to product A1 next month?
d. What is the total overhead allocated to product B2 next month?
a. predetermined rate ?? % of direct materials costs
b. predetermined rate ?? % of direct-labor cost
c. Total Overhead (A1) ??
d. Total Overhead (B2) ??

Answer 1

Answer:

a. 15% of direct material cost

b.  30% of direct labor cost

c. $16,500

d. $37,500

Explanation:

The computation is shown below:-

a. Predetermine overhead rate = Direct-material related ÷ Total of direct labor

= 13,500 ÷ 90,000

= 15% of direct material cost

b. Predetermine overhead rate = Direct-labor related ÷ Total of direct labor

= 40,500 ÷ 135,000

= 30% of direct labor cost

c. Total overhead (A1) = Direct material × Predetermine overhead rate of direct material + Direct labor × Predetermine overhead rate of direct labor

= 30,000 × 15% + 40,000 × 30%

= $16,500

d. Total overhead (B2) = Direct material × Predetermine overhead rate of direct material + Direct labor × Predetermine overhead rate of direct labor

= 60,000 × 15% + 95,000 × 30%

= $37,500