LMN Services Ltd.

Scenario: Allocate Overhead Costs

Data:

• Total Overhead Costs: $100,000
• Cost Allocation Bases:
  • Machine Hours: 5,000 hours
  • Direct Labor Hours: 10,000 hours

Requirements:

1. Allocate overhead costs based on machine hours.
2. Allocate overhead costs based on direct labor hours.
3. Compare the allocation methods and their impact on product costs.
4. Discuss the rationale behind choosing an appropriate overhead allocation base for LMN Services Ltd.