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Overheads Allocation

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Offshore Company makes two different types of boats sail and fishing boats. The company consists of two different departments, design & engineering, and production. The company has decided to allocate overhead costs in each of the two cost pools. Data on estimated overhead follows:

Estimated Sail Fish
Activity: Driver Overhead Cost Estimate Estimate
Design # of designs $180,000 22 designs 18 designs
Production Labor hours $945,000 4,000 hours 3,500 hours

If the company produces and sells 22 sail boats, and each sail boat requires 180 labor hours, how much overhead will be assigned to each sail boat produced?

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Solution Summary

Offshore Company makes two different types of boats: sail and fishing boats. The company consists of two different departments, design & engineering, and production. The company has decided to allocate overhead costs in each of the two cost pools.

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Choose the answer depending upon the requirement of the question. These are the two possible answers:

ANSWER 1:
Production Overhead cost per labor hour = $945,000/[4000 + 3500] ==> $126 ...

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Radhika Lakshmi, MPhil
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  • MPhil, Madurai Kamaraj University
  • MCom, Annamalai University
  • IATA, International Air Transport Association
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