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Donnelly Corp. manufactures two products. The company's budgeted total overhead for 2011 is $350,000; of this amount, $276,000 relates to utilities and depreciation on automated equipment. In 2011, Donnelly expects to produce 200,000 of X and 300,000 units of Y. It takes 3.0 and 1.5 direct labor hours to produce one unit of X and Y, respectively. However, relative to the automated equipment, Product X requires 10 minutes per unit and Product Y requires 1 minute per unit. Product X and Y have unit contribution margins of $5 and $4, respectively.
-If overhead is applied on a direct labor hour basis, what is Donnelly's predetermined overhead rate for 2011 (rounded to the nearest cent)?
A) $0.15 per DLH
B) $0.33 per DLH
C) $0.26 per DLH
D) $0.55 per DLH
E) $0.70 per DLH

Question

Use the following information to answer questions 
Donnelly Corp. manufactures two products. The company's budgeted total overhead for 2011 is $350,000; of this amount, $276,000 relates to utilities and depreciation on automated equipment. In 2011, Donnelly expects to produce 200,000 of X and 300,000 units of Y. It takes 3.0 and 1.5 direct labor hours to produce one unit of X and Y, respectively. However, relative to the automated equipment, Product X requires 10 minutes per unit and Product Y requires 1 minute per unit. Product X and Y have unit contribution margins of $5 and $4, respectively.
-If overhead is applied on a direct labor hour basis, what is Donnelly's predetermined overhead rate for 2011 (rounded to the nearest cent)?
A) $0.15 per DLH
B) $0.33 per DLH
C) $0.26 per DLH
D) $0.55 per DLH
E) $0.70 per DLH

Quizplus · Accepted Answer

To calculate the predetermined overhead rate (POHR), divide the total budgeted overhead by the total direct labor hours (DLH) expected for the year. The total overhead is $350,000. The total DLH for Product X is 200,000 units * 3.0 DLH/unit = 600,000 DLH. For Product Y, it's 300,000 units * 1.5 DLH/unit = 450,000 DLH. The total DLH is 600,000 + 450,000 = 1,050,000 DLH. Therefore, POHR = $350,000 / 1,050,000 DLH = $0.3333 per DLH, rounded to the nearest cent is $0.33.

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