Chapter 6, Problem 1MC

Active Frame, Inc., manufactures clear and tinted sport glasses. The manufacturing of clear glasses takes 45,000 direct labor hours and involves 1,700 parts and 115 inspections. The manufacturing of tinted glasses takes 115,000 direct labor hours and involves 1,400 parts and 450 inspections. The traditional method applies $560,000 of overhead on the basis of direct labor hours. What is the amount of overhead per direct labor hour applied to the clear glass products?

A. $933.33

B. $157,500

C. $322.500

D. $402,500

To determine

Concept introduction:

Predetermined overhead allocation:

Manufacturing overhead cost is the pool of all indirect costs incurred for the production. These are the costs which are not directly traceable to the product. Manufacturing costs include indirect material indirect labor and overheads. These costs are allocated to the products using the predetermined overhead allocation rate. The formula of predetermined overhead allocation rate is as follows:

$\text{Predetermined overhead allocation rate = }\frac{\text{Estimated Manufacturing overhead Cost}}{\text{Allocation base}}$

To choose:

The amount of overhead applied to clear glass products.

Answer to Problem 1MC

The amount of overhead applied to clear glass products = B. $157,500

Explanation of Solution

The amount of overhead applied to clear glass product is calculated as follows:

$\begin{array}{l}\text{Total Overhead Cost =\$560,000}\\ \text{Total Direct labor hours = (45000+115000) = 160,000 hours}\\ \text{Overhead Allocation rate = }\frac{\text{\$560000}}{\text{160000}}\text{ = \$3}\text{.50}\\ \text{The amount of overhead applied to clear glass product = 45000 hours x \$3}\text{.5 =\$157,500}\end{array}$