Question

The following overhead cost information is available for the Herbert Love Corporation for the prior year:


During the year, 8,000 purchase orders were issued; 25,000 shipments were received; 4,000 machine setups occurred; and 7,500 inspections were conducted. Employees worked a total of 10,000 hours on production. The corporate managers are trying to decide whether they should use a traditional overhead allocation method based on direct labor hours, or switch to an activity-based costing system. Assume that a batch of products has the following specifications.
Direct labor hours ........... 7
Purchase orders ............ 7
Shipments received ......... 10
Machine setups ............ 3
Inspections ............ 3

Required
A. Determine the overhead allocation for the batch under the traditional overhead allocation based on direct labor hours.
B. Determine the overhead allocation for the batch under activity-basedcosting.


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  • CreatedMarch 11, 2015
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