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Homework answers / question archive / National Inc
National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.
Annual Sales Model in Units
High F Great P
10,000
16,000
National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:
High F Great P Direct materials $38.00 $25.40 Direct labor $17.52 $13.14
Budget factory overhead: Engineering and Design Quality Control Machinery Miscellaneous Overhead Total
2,409 engineering hours $ 404,712 12,848 inspection hours 269,808 33,726 machine hours 539,616 26,400 direct labor hours 134,904
$1,349,040
National's controller had been researching activity-based costing and decided to switch to it. A special study determined National's two products have the following budgeted activities:
Great High F P
Engineering and design hours Quality control inspection hours Machine hours Labor hours
969 1,440 5,648 7,200 20,286 13,440 12,000 14,400
What is the overhead application rate using the firm's volume-based costing system? (Rounded to the nearest percent or cents.)
Multiple Choice O 5,110 percent of direct labor cost. O 5,189 percent of direct labor cost.
O $51.89 per direct labor-hour. O 68 percent of direct labor cost. O 350 percent of direct labor cost.
Computation of Overhead application rate using the firm's volume-based costing system:
Factory overhead Rate per Direct Labor Dollars = Total Budgeted Factory overheads / Total Labor Cost in Dollars
= $1349040 / [(10,000 * $17.52) + (16,000 * $13.14)]
= $1349040 / [$175,200 + $210,240]
= $1349040 / $385,440
= $3.50 per Direct Labor Dollars or 350% of Direct Labour Cost
So, the correct option is 5th "350% of direct labor cost".
