Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 4,600 units of Product A requiring a total of 760 labor hours and 2,100 units of Product B requiring a total of 160 labor hours. What allocation rate should be used if the company incurs overhead costs of $14,720?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Kirsten believes her company's
![### Understanding Overhead Cost Allocation
Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor-intensive. During the period, the company produced 4,600 units of Product A requiring a total of 760 labor hours and 2,100 units of Product B requiring a total of 160 labor hours.
#### Question:
What allocation rate should be used if the company incurs overhead costs of $14,720?
#### Multiple Choice:
1. $16 per labor hour
2. $2.20 per unit
3. $19.37 per labor hour for Product A and $92 per labor hour for Product B
4. None of these.
### Analysis:
**Breakdown of Labor Hours:**
- Product A: 760 labor hours
- Product B: 160 labor hours
**Total Labor Hours:**
\[ 760 \text{ hours} + 160 \text{ hours} = 920 \text{ labor hours} \]
**Overhead Costs:**
\[ \$14,720 \]
**Calculation of Overhead Rate per Labor Hour:**
\[ \text{Overhead Rate} = \frac{\$14,720}{920 \text{ labor hours}} = \$16 \text{ per labor hour} \]
Thus, the correct overhead allocation rate based on the given overhead costs and labor hours is $16 per labor hour.
#### Correct Answer:
- $16 per labor hour](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbe9c485f-7800-42c6-9e2a-230c778c41ae%2Fc9893cb8-7939-45bd-be72-56dac0e1636e%2F9g02ba_processed.png&w=3840&q=75)
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