Crinkle Cut Clothes Company manufactures two products CC1 and CC2. Current direct material and direct labor costs are detailed below. Next year the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $338,250. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $28 per hour and the company expects to manufacture 22,000 units of CC1 and 91,000 units of CC2 next year.

CC1: Direct material per unit $37.10, Direct Labor Dollars Per Unit $22.40

CC2: Direct material per unit $25.20, Direct Labor Dollars Per Unit $15.40

Compute the plantwide overhead rate for next year.

$28.00 per DLH.

$37.80 per DLH.

$1.35 per DLH.

$5.00 per DLH.

$.20 per DLH.

The correct answer is D.

Explanation:

Giving the following information:

Next year's overhead is estimated to be $338,250.

Direct labor costs $28 per hour and the company expects to manufacture 22,000 units of CC1 and 91,000 units of CC2 next year.

CC1: Direct Labor Dollars Per Unit $22.40

CC2: Direct Labor Dollars Per Unit $15.40

First, we need to calculate the number of direct labor hours required:

CC1 = 22.4/28 = 0.8 direct labor hours per unit

CC2 = 15.4/28 = 0.55 direct labor hours per unit

CC1 = 22,000 units * 0.8 = 17,600 hours

CC2 = 91,000 * 0.55 = 50,050 hours

Total = 67,650 hours

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

Estimated manufacturing overhead rate = 338,250 / 67,650 = %5 per direct labor hour