A company estimates total overhead costs for the next year to be $1,500,000 and wishes to use direct labor hours as its overhead allocation base.This company makes two products: (1) Fancy X ,which requires three direct labor hours per unit,and (2)Plain X,which requires one direct labor hour per unit.If the company plans to make 20,000 units of Fancy X and 20,000 units of Plain X,then each unit produced will be allocated the same amount of overhead.

Question

Quizplus · Accepted Answer

($1,500,000)/[(3 x 20,000) + (1 x 20,000)] DL hours = $18.75 per DL hour
Overhead allocated to 1 unit of Fancy X = $18.75 x 3 DLH = $56.25
Overhead allocated to 1 unit of Plain X = $18.75 x 1 DLH = $18.75

A Company Estimates Total Overhead Costs for the Next Year