Gibson Hats Corporation manufactures three different models of hats: Vogue, Beauty, and Glamour. Gibson expects to incur $666,000 of overhead cost during the next fiscal year. Other budget information follows. Vogue Beauty Glamour Total Direct labor hours 3,400 5,400 9,200 18,000 Machine hours 1,200 2,050 2,300 5,550 Required Use direct labor hours as the cost driver to compute the allocation rate and the budgeted overhead cost for each product. Use machine hours as the cost driver to compute the allocation rate and the budgeted overhead cost for each product.

A. Vogue $125,800

Beauty$199,800

Glamour$340,400

B. Vogue $144,000

Beauty $246,000

Glamour$276,000

Explanation:

A. Computation for the allocation rate and the budgeted overhead cost for each product Using direct labor hours as the cost driver

First step is to calculate the Product Allocation rate

Product Allocation rate =$666,000/18,000

Product Allocation rate=$37.00

Now let calculate the allocation rate and the budgeted overhead cost for each product

Using this formula

Allocated Cost=Product Allocation rate*Weight of Base

Let plug in the formula

Vogue=$37.00*3400

Vogue=$125,800

Beauty=$37.00*5400

Beauty=$199,800

Glamour=$37.00*9200

Glamour=$340,400

Total $666,000.00

($125,800+$199,800+$340,400)

Therefore the allocation rate and the budgeted overhead cost for each product Using direct labor hours as the cost driver will be :

Vogue $125,800

Beauty$199,800

Glamour$340,400

B. Computation for the allocation rate and the budgeted overhead cost for each product Using

Use machine hours as the cost driver

First step is to calculate the Product Allocation rate

Product Allocation rate =$666,000/5,550

Product Allocation rate=$120.00

Now let calculate the allocation rate and the budgeted overhead cost for each product

Using this formula

Allocated Cost=Product Allocation rate*Weight of Base

Vogue=$120.00*1200

Vogue=$144,000

Beauty=$120.00*2050

Beauty=$246,000

Glamour=$120.00*2300

Glamour=$276,000

Total $666,000

($144,000+$246,000+$276,000)

Therefore the allocation rate and the budgeted overhead cost for each product Using

Use machine hours as the cost driver will be:

Vogue $144,000

Beauty $246,000

Glamour$276,000

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