Columbus company provides the following abc costing information: activities total costs activity dash cost drivers labor $ 480 comma 000 10 comma 000 hours gas $ 32 comma 000 4 comma 000 gallons invoices $ 110 comma 000 5 comma 500 invoices total costs $ 622 comma 000 the above activities used by their three departments are: lawn department bush department plowing department labor 3 comma 000 hours 1 comma 200 hours 5 comma 800 hours gas 1 comma 700 gallons 900 gallons 1 comma 400 gallons invoices 1 comma 500 invoices 400 invoices 3 comma 600 invoices if labor hours are used to allocate the nonminuslabor, overhead costs, what is the overhead allocation rate

Allocation rate = $622,000 / 10,000 hours = $62.2 per hour

Explanation:

Provided

Activity                          Total costs                       Cost Driver

Labor                             $480,000                           10,000 hours

Gas                                $32,000                              4,000 gallons

Invoices                         $110,000                              5,500 invoices

Total costs                     $622,000

Used as follows

Particulars               Lawn Dept.               Bush dept.               Plowing Dept.

Labor                       3,000 hours             1,200 hours              5,800 hours

Gas                          1,700 gallons            900 gallons             1,400 gallons

Invoices                   1,500 invoices          400 invoices           3,600 invoices

If labor hours are used even for non labor activities then

Overhead costs will be allocated in ratio of labor hours i.e. 3000:1200:5800

= 15:6:29 (Total = 50)

Total overheads = $622,000

Allocation rate = $622,000 / 10,000 hours = $62.2 per hour

Lawn Department = $62.2 3,000 hours = $186,600

Bush Department = $62.2   1,200 hours = $74,640

Plowing Department = $62.2 5,800 hours = $360,760

Allocation rate = $622,000 / 10,000 hours = $62.2 per hour

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