Question

a) Douglas Corporation expects to incur $6,000,000 in factory overhead for the current year. Expected direct labor in the factory is 100,000 hours. Required: Compute the overhead allocation rate.

b) Douglas is considering adopting an ABC system, with four overhead pools as follows:
Cost Budgeted activity
Setup $2,440,000 200 setups
Parts $1,630,000 500 parts
Machining $1,200,000 60,000 machine hours
General o/h $730,000 100,000 direct labor hours
Required: Compute the overhead allocation rate for each cost pool

c) Product X22 is expected to use the following resources in the current year:
Direct labor hours 12,000
Machine hours 6,800
Parts 45
Setups 15

Required: Compute the amount of overhead allocated to X22 under the traditional method of part a) above, and under the ABC method. Comment briefly as to why the amounts differ and which method is more accurate? Explain briefly why it is more accurate.

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a) Douglas Corporation expects to incur $6,000,000 in factory overhead for the current year. Expected direct labor in the factory is 100,000 hours.
Required: Compute the overhead allocation rate.
Calculate overhead rate by dividing total factory overhead by total factory labor hours

Factory overhead $6.000.000
Direct labor hours รท 100.000
Overhead allocation rate / hr. $60,00...

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