The company you work for currently allocates insurance costs on the basis of cost per direct labor hour. This indirect cost component for the year is budgeted at $36,000. If the annual direct labor hours for departments A, B, and C are expected to be 2000, 8000, and 5000, respectively, determine the allocation to each department.
What will be an ideal response?
Total direct labor hours = 2000 + 8000 + 5000
= 15,000 hours
Indirect cost rate = 36,000/15,000 = $2.40 per hour
Allocation:
Dept A = 2000(2.40) = $4800
Dept B = 8000(2.40 = $19,200
Dept C = 5000(2.40) = $12,000
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