Wright Brothers is debating the use of direct labour cost or direct labour hoursas the cost allocation base for allocating manufacturing overhead. The followinginformation is available for the year ended December 31, 2007.Estimated direct labour costActual direct labour costEstimated manufacturing overheads|Actual manufacturing overhead costsEstimated direct labour hoursActual direct labour hours$449,500$441,000$359,600$338,000248,000242,000The OAR when using direct labour hours as the cost driver is Black Company uses predetermined overhead rates to apply manufacturing overheads to jobs. The predeterminedoverhead rates are based on machine hours in Department A and direct labour cost in Department B. At the beginning ofthe year, the company made the following estimates:Dept. A Dept. BManufacturing Overhead $25,000 $30,000Direct Labour Hours16,00012,000Machine Hours5,00010,000Direct Labour Cost$20,000 $15,000What predetermined overhead rates would be used in Departments A and B respectively?

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Description: Wright Brothers is debating the use of direct labour cost or direct labour hoursas the cost allocation base for allocating manufacturing overhead. The followinginformation is available for the year ended December 31, 2007.Estimated direct labour cos

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Wright Brothers is debating the use of direct labour cost or direct labour hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the year ended December 31, 2007. Estimated direct labour cost Actual direct labour cost Estimated manufacturing overheads Actual manufacturing overhead costs Estimated direct labour hours Actual direct labour hours $449,500 $441,000 $359,600 $338,000 248,000 242,000 The OAR when using direct labour hours as the cost driver is

Wright Brothers is debating the use of direct labour cost or direct labour hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the year ended December 31, 2007. Estimated direct labour cost Actual direct labour cost Estimated manufacturing overheads Actual manufacturing overhead costs Estimated direct labour hours Actual direct labour hours $449,500 $441,000 $359,600 $338,000 248,000 242,000 The OAR when using direct labour hours as the cost driver is

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Concept explainers

Variance Analysis

In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.

Standard Costing

The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.

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Wright Brothers is debating the use of direct labour cost or direct labour hours
as the cost allocation base for allocating manufacturing overhead. The following
information is available for the year ended December 31, 2007.
Estimated direct labour cost
Actual direct labour cost
Estimated manufacturing overheads
|Actual manufacturing overhead costs
Estimated direct labour hours
Actual direct labour hours
$449,500
$441,000
$359,600
$338,000
248,000
242,000
The OAR when using direct labour hours as the cost driver is

Black Company uses predetermined overhead rates to apply manufacturing overheads to jobs. The predetermined
overhead rates are based on machine hours in Department A and direct labour cost in Department B. At the beginning of
the year, the company made the following estimates:
Dept. A Dept. B
Manufacturing Overhead $25,000 $30,000
Direct Labour Hours
16,000
12,000
Machine Hours
5,000
10,000
Direct Labour Cost
$20,000 $15,000
What predetermined overhead rates would be used in Departments A and B respectively?

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