Answer:
$7.20
Explanation:
Given the following :
FINISHING department :
overhead budget = $550,000
direct labor HOURS = 500,000
PRODUCTION department :
overhead budget = $400,000
direct labor hours = 80,000
Predetermined allocation rate for finishing department :
Overhead / allocation base = ($550,000 / 500,000) = $1.10 per direct labor hour
Predetermined allocation rate for production department :
Overhead / allocation base = ($400,000 / 80,000) = $5 per direct labor hour
If the budget estimates that a desk lamp will require 2 hours of finishing and 1 hour of production:
Finishing department :
(2 × Predetermined allocation rate for finishing department)
= (2 × $1.10) = $2.20
Production :
(1 × Predetermined allocation rate for production department)
= (1 × $5). = $5
Total = ($2.20 + $5) = $7.20
