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Determine the overhead allocation rate

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Problem - Job Cost Using Different Overhead Rates

Vintage Auto Company manufactures parts to order for antique cars. Vintage Auto makes everything from fenders to engine blocks. Each customer order is treated as a job. Vintage Auto currently has two jobs, No. 9823 and No. 9824 that are complete, although overhead has not yet been applied. The company wants to know what each job's cost would be under alternative overhead allocation rates based on: (1) direct labor cost, (2) direct labor hours, and (3) machine hours. Estimates for this year are as follows:

Direct labor cost      $250,000

Direct labor hours    20,000

Machine hours         7,000

Overhead costs       $140,000

Depreciation on machinery accounts for 75 percent of the overhead costs. The job-cost sheets show:

Job 9823  Job 9824
Direct material $ 860 $1,700
Direct labor cost $1,100 $1,100
Direct labor hours 90 70
Machine hours 110 210

Required

a. Determine the overhead allocation rate under the three suggested allocation bases. Round to the two decimal places.

b. Calculate the cost of Job 9823 and Job 9824 using each of the three bases. Round to two decimal places.

c. Discuss which allocation base appears preferable.

Reference no: EM131824159

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