Hewett, Inc., manufactures and sells two products: Product E7 and Product U7. Da

Question

Hewett, Inc., manufactures and sells two products: Product E7 and Product U7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

The direct labor rate is $29.50 per DLH. The direct materials cost per unit is $164.10 for Product E7 and $289.50 for Product U7.

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the predetermined overhead rate would be closest to:

$37.73 per DLH

$44.20 per DLH

$83.46 per DLH

$93.99 per DLH

Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours Product E7 1,000 7.0 7,000 Product U7 200 8.0    1,600 Total direct labor-hours    8,600

Explanation / Answer

Predetermined overhead rate = Total overhead cost / Total direct labor hours

= 808296 / 8600 hours

= $ 93.99 per DLH

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