Rubio, Inc, a law consulting 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 $300 per hour. Clients are billed at 160% of direct labor cost. Chandler Massey, the president of Rubio, decided to develop an ABC system to more accurately allocate the indirect costs. He identified two activities related to the total indirect costs-travel and information technology (IT) support. The other relevant details are given below:
Activity Allocation base Estimated costs Estimated quantity
of allocation base
Travel Miles driven $85,000 1,500 miles
IT Support Direct labor hours 59,000 1,250 DLH
Total $144,000
The predetermined overhead allocation rate for travel will be ________. (Round your answer to the nearest cent.)
A) $47.20 per mile
B) $56.67 per mile
C) $68.00 per mile
D) $96.00 per mile
B .B) Predetermined overhead allocation rate = Total estimated overhead costs / Total estimated quantity of the overhead allocation base = $85,000/ 1,500 miles = $56.67 per mile
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