Bag Ladies, Inc. manufactures two kinds of bagslong dash—totes and satchels. The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base. Estimated overhead costs for the year are $ 25 comma 500$25,500. Additional estimated information is given below.
Direct materials cost per unit Direct labor cost per unit Number of units Totes Satchels 45 $64 350 $35 $51 530
Calculate the amount of overhead to be allocated to Totes. (Round any percentages to two decimal places and your final answer to the nearest dollar.)
A. $13,945
B. $330
c. $11,556
D. $500

The overhead cost allocated to Totes is $11556 and option c is the correct answer

Explanation:

To allocate the overheads between products using a plant wide rate, we need to calculate the plant wide Overhead absorption rate (OAR). The OAR allocates overheads to each product based on the activity level consumed by each product.

OAR = Budgeted Overheads  /  Budgeted Absorption base

As the overhead absorption base is the direct labor cost, we first need to determine the total direct labor cost for both the products.

Direct labor cost = 64 * 350  +  51 * 530  =  $49430

OAR = 25500 / 49430  =  $0.5159 per direct labor cost of $1

Direct labor cost used by Totes = 64 * 350 = $22400

Overheads to be allocated to Totes = 22400 * 0.5159  = $11556.16 rounded off to $11556  

reducing the scale of the market for a new product.