The following information is available for the Downtown Furniture Company which produces two types of tables. Management feels that the fixed manufacturing costs should be allocated based on direct labor costs and fixed administrative costs should be allocated based on units sold. The rate at which fixed manufacturing costs which should be allocated is: (rounded)
A) $1.05 per direct labor dollar
B) $.95 per direct labor dollar
C) $1.34 per direct labor dollar
D) $3.08 per direct labor dollar

Question

The following information is available for the Downtown Furniture Company which produces two types of tables.  Management feels that the fixed manufacturing costs should be allocated based on direct labor costs and fixed administrative costs should be allocated based on units sold. The rate at which fixed manufacturing costs which should be allocated is: (rounded)
A) $1.05 per direct labor dollar 
B) $.95 per direct labor dollar 
C) $1.34 per direct labor dollar 
D) $3.08 per direct labor dollar

Quizplus · Accepted Answer

The information given states that fixed manufacturing costs should be allocated based on direct labor costs, therefore we need to calculate the allocation rate using the formula:
Allocation rate = Fixed manufacturing costs / Direct labor costs
From the data given, we can calculate the allocation rate as follows:
Allocation rate = $420,000 / $400,000 = $1.05 per direct labor dollar
Therefore, the correct answer is A) $1.05 per direct labor dollar.

The Following Information Is Available for the Downtown Furniture Company