Sable Company Is Debating the Use of Direct Labor Cost

question 163

Multiple Choice

Sable Company is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead.The following information is available for the most recent year: $$\begin{array} { | l | l | } \hline \text { Estimated direct labor cost } & \$ 500,000 \\\hline \text { Actual direct labor cost } & \$ 450,000 \\\hline \text { Estimated manufacturing overhead costs } & \$ 400,000 \\\hline \text { Actual manufacturing overhead costs } & \$ 350,000 \\\hline \text { Estimated direct labor hours } & 250,000 \\\hline \text { Actual direct labor hours } & 245,000 \\\hline\end{array}$$
- If Sable Company uses direct labor cost as the allocation base,what would the predetermined manufacturing overhead rate be?

• A)70%
• B)80%
• C)89%
• D)78%

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