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Altex Inc. manufactures two products: car wheels and truck wheeIs. To determine the amount of...

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Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information:

Car Truck
Estimated wheels produced 35,000 15,000
Direct labor hours per wheel 13

Total estimated overhead costs for the two product lines are $785,000.

Calculate overhead rate.

Overhead rate $ _ _ _ per direct labor hour

Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs. (Round answers to 0 decimal places, e.g. 1,575.)

Car wheels $ _ _ _
Truck wheels $ _ _ _

Overhead Cost Allocation:

When allocating overhead costs to products a cost allocation base must first be determined. The overhead costs are then allocated to individual units worked of the cost allocation base (eg. labor hours). This can then be used in order to determine total costs associated with an individual product.

Answer and Explanation: 1

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We can determine the overhead rate per direct labor hour worked by determining the total hours worked and then allocating the total overhead across...

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Cost Allocation: Definition, Terms & Examples

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Chapter 4 / Lesson 1
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Learn the cost allocation definition and its process. Understand how costs are allocated using examples.


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