Question

In: Accounting

ABC products makes parts for car engines. three departments (A, B and C) are involved in...

ABC products makes parts for car engines. three departments (A, B and C) are involved in the manufacturing process. The budgets for departmental overhead costs are $25,000, $45,000 and $30,000 respectively, which are allocated to products based on direct labor hours. Estimates of direct labor hours for each department are 5,000 7,000 and 10,000 hours respectively. The business-wide overhead absorption rate is:

a. $3.00

b. $4.55

c. $4.81

d. 5.00

Solutions

Expert Solution

Correct Option B i.e. $4.55
Department A Department B Department C Total
Budgeted Overhead                 25,000                 45,000                 30,000          100,000
Direct Labour Hour                   5,000                   7,000                 10,000            22,000
Overhead absorption rate                 4.55 (100000/22000)
(Budgeted Overhead/Direct Labour Hour)

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