PB3.

LO 4.4Event Forms expects $120,000 in overhead during the next year. It doesn’t know whether it should apply overhead on the basis of its anticipated direct labor hours of 6,000 or its expected machine hours of 5,000. What would be the product cost under each predetermined allocation rate if the last job incurred $3,500 in direct material cost, 55 direct labor hours, and 55 machine hours? Wages are paid at $17 per hour.

Instructions are listed below.

Explanation:

Giving the following information:

Total overhead = $120,000.

Direct labor hours of 6,000.

Machine hours of 5,000.

The last job incurred $3,500 in direct material cost, 55 direct labor hours, and 55 machine hours. Wages are paid at $17 per hour.

First, we need to calculate the estimated manufacturing overhead rate for each allocation base.

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

Direct labor:

Estimated manufacturing overhead rate = 120,000/6,000 = $20 per direct labor hour

Total cost = 3,500 + 20*55 + 17*55 = $5,535

Machine hour:

Estimated manufacturing overhead rate = 120,000/5,000 = $24 per machine hour

Total cost = 3,500 + 24*55 + 17*55 = $5,755