Hearthstone, Inc The Predetermined Overhead Allocation Rate for Travel Will Be ________

question 153

Multiple Choice

Hearthstone, Inc., a home healthcare firm, has been using a single predetermined overhead allocation rate with direct labor hours as the allocation base to allocate overhead costs. The direct labor rate is $200 per hour. Clients are billed at 190% of direct labor cost. Sofi Acosta, the president of Hearthstone, decided to develop an ABC system to more accurately allocate the indirect costs. She identified two activities related to the total indirect costs-travel and information technology (IT) support. The other relevant details are given below: $$\begin{array} { | l | l | l | l | } \hline \text { Activity } & \text { Allocation base } & \text { Estimated costs } & \begin{array} { l } \text { Estimated quantity } \\\text { of allocation base }\end{array} \\\hline \text { Travel } & \text { Miles driven } & \$ 85,000 & 3000 \text { miles } \\\hline \text { IT Support } & \text { Direct labor hours } & 60,000 & 1300 \mathrm { DLH } \\\hline \text { Total } & & \$ 145,000 & \\\hline\end{array}$$ The predetermined overhead allocation rate for travel will be ________. (Round your answer to the nearest cent.)

• A) $46.15 per mile
• B) $28.33 per mile
• C) $65.38 per mile
• D) $48.33 per mile

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Definitions:

Shares Outstanding

The total number of a company's shares of stock that are owned by shareholders, including both public investors and restricted company insiders.

Cost of Equity

The return that investors expect for investing in a company's equity, considering the risk involved in holding the company's shares.

Present Value

The current value of a future sum of money or stream of cash flows, given a specified rate of return.

Growth Opportunities

Prospects or possibilities for financial growth and expansion within a company or market, often through investment in new projects or sectors.