Active Frame, Inc., manufactures clear and tinted sport glasses. The manufacturing of clear glasses takes 45,000 direct labor hours and involves 1,700 parts and 115 inspections. The manufacturing of tinted glasses takes 115,000 direct labor hours and involves 1,400 parts and 450 inspections. The traditional method applies $560,000 of overhead on the basis of direct labor hours. What is the amount of overhead per direct labor hour applied to the clear glass products?

Question

BlackTom AI · Accepted Answer

Predetermined overhead rate equals total overhead divided by total direct labor hours.

Relevant concepts:
- Predetermined overhead rate = Total estimated overhead ÷ Total allocation base (here, direct labor hours).
- Overhead applied to a product = Predetermined overhead rate × Direct labor hours used by that product.

Step-by-step reasoning and calculations:
1. Calculate total direct labor hours (allocation base):
   - Clear glasses: 45,000 hours
   - Tinted glasses: 115,000 hours
   - Total = 45,000 + 115,000 = 160,000 hours

2. Compute the predetermined overhead rate ($ per direct labor hour):
   - Total overhead to be applied = $560,000
   - Rate = $560,000 ÷ 160,000 hours = $3.50 per direct labor hour

3. Apply that rate to the clear glass product:
   - Overhead applied to clear = Rate × Clear direct labor hours
   - = $3.50/hour × 45,000 hours
   - = $157,500

Why this is correct:
- The company applies overhead on the basis of direct labor hours, so we must first determine the per-hour overhead rate using total hours, then multiply by the hours consumed by clear glasses. The arithmetic above follows that standard costing procedure, yielding $157,500 of overhead allocated to clear glasses.

Why other approaches are incorrect:
- Dividing total overhead by only clear hours (560,000 ÷ 45,000) would give an inflated per-hour rate and is wrong because allocation must use total direct labor hours for both products.
- Using parts or inspections as the allocation base would be an activity-based costing approach; the problem explicitly states overhead is applied on the basis of direct labor hours.

Conclusion:
Using the prescribed allocation base and the calculations shown, the overhead applied to clear glass products is $157,500, which matches the provided correct answer.

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