The Osborne Company manufactures products in two departments:
Mixing and Packaging.
The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are $ 810,000, and estimated direct labor hours are 360,000.
In October, the company incurred 20,000 direct labor hours.
Requirement:
1. Compute the predetermined overhead allocation rate. Round to two decimal places.
2. Determine the amount of overhead allocated in October.

Instructions are listed below.

Explanation:

Giving the following information:

Estimated overhead costs for the year are $ 810,000, and estimated direct labor hours are 360,000.

The company incurred 20,000 direct labor hours.

First, we need to calculate the estimated overhead rate:

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 810,000/360,000= $2.25 per direct labor hour

Now, we can allocate overhead based on actual direct labor hours:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 2.25*20,000= $45,000

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