Channing Corporation makes two products (A1 and B2) that require direct materials, direct labor, and overhead. The following data refer to operations expected for next month. A1 B2 Total Revenue $ 170,000 $ 510,000 $ 680,000 Direct material 65,000 130,000 195,000 Direct labor 54,000 128,250 182,250 Overhead: Direct-material related 42,900 Direct-labor related 40,095 Required: Channing uses a two-stage cost allocation system, It uses direct-material costs to allocate direct-materials related overhead and direct-labor costs to allocate direct-labor related overhead costs. a. Compute the direct-material related overhead rate for next month. b. Compute the direct-labor related overhead rate for next month. c. What is the total overhead allocated to product A1 next month

Channing Corporation

a. The direct-material related overhead rate = $0.22

b. The direct-labor related overhead rate = $0.22

c. The total overhead allocated to product A1 next month = $26,100

Explanation:

a) Data and Calculations:

Products                          A1             B2     Total

Total Revenue      $ 170,000 $ 510,000   $ 680,000

Direct material           65,000   130,000        195,000

Direct labor                54,000   128,250        182,250

Overhead:

Direct-material related                                   42,900

Direct-labor related                                        40,095

Total overhead                                             $82,995

a. Direct-material related overhead rate:

Overhead = $42,900

Total direct materials costs = $195,000

Overhead rate = $42,900/$195,000 = $0.22

b. Direct-labor related overhead rate:

Overhead = $40,095

Total direct labor costs = $182,250

Overhead rate = $40,095/$182,250 = $0.22

c. Total overhead allocated to product A1:

Direct materials related overhead = $14,300 ($0.22 * $65,000)

Direct labor related overhead =           11,800 ($0.22 * $54,000)

Total overhead allocated =               $26,100

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