Question

The Oakman 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.

Requirements

2. Determine the amount of overhead allocated in October.

Short answer

Overhead in October is $45,000.

Step-by-step solution

Overhead cost.

Overhead costs are the indirect costs that are incurred in the production or non-production activities. Indirect costs are not directly involved in the process but help to make the process efficient. Due to this reason, these costs cannot be directly attributed to any product or service.

Overheads are reallocated based on some to get the idea of the per-unit cost and total cost of any product or service.

Overhead allocation in October

$$\begin{gathered} \mathbf{October}\mathbf{}\mathbf{overhead}\mathbf{}\mathbf{=}\mathbf{predetermine}\mathbf{}\mathbf{overhead}\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{rate}\mathbf{}\mathbf{\times }\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{base}\mathbf{}\mathbf{for}\mathbf{}\mathbf{october} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{.}\mathbf{25}\mathbf{\times }\mathbf{20}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{45}\mathbf{,}\mathbf{000} \end{gathered}$$