Chapter 12, Problem 6E

Exercise 4-5A Allocating overhead cost among products

 Tyson Hats Corporation manufactures three different models of hats: Vogue. Beauty, and Glamour. Tyson expects to incur $480,000 of overhead cost during the next fiscal year. Other budget information follows:

 Required

a.    Use direct labor hours as the cost driver to compute the allocation rate and the budgeted overhead cost for each product.

b.    Use machine hours as the cost driver to compute the allocation rate and the budgeted overhead cost for each product.

c.    Describe a set of circumstances where it would be more appropriate to use direct labor hours as the allocation base.

d.    Describe a set of circumstances where it would be more appropriate to use machine hours as the allocation base.