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Assuming that overhead in the machining department is allocated on the basis of machine hours, and overhead in the assembly department is allocated on the basis of direct labor cost, the departmental overhead rates per unit of the related allocation bases in the Machining and Assembly Departments respectively will be:110% and $15.00.$5.00 and 50%.$5.00 and 200%.$8.00 and 50%

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Kolawole845

Question

The complete question is as follows:

                  Machining  Assembly

Direct Labour  16,000   12,000

Direct labour cost  20,000   15,000

Machine hours  5,000   1,000

Overhead($)          25,000   30,000

Answer

                                           Machining                        Assembly

Overhead absorption rate = $5 per hour                   200% of labour cost

Explanation:

Overhead absorption rate is used to charged overheads to output achieved. It is calculated as follows:

OAR = Budgeted overhead / Budgeted activity

                                                       Machining                    Assembly

Overhead absorption rate   25,000/5000 hrs          30,000/15000 × 100

                                           = $5 per hour                   200% of labour cost

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