If annual overhead costs are expected to be $500,000 and direct labor costs are expected to be $2,500,000, then if the activity base is direct labor costs:
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Wright Brothers 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 year ended December 31, 2007: Estimated direct labor cost: $449,500 Actual direct labor cost: $541,000 Estimated manufacturing overhead: $359,600 Actual manufacturing overhead costs: $338,000 Estimated direct labor hours: 248,000 Actual direct labor hours: 242,000 Manufacturing overhead applied based on direct labor hours is:
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