Answer (D) is correct . Total indirect costs are $12,000,000 ($5,000,000 + $7,000,000). The appropriate allocation base is direct labor hours, since this more closely matches activity level than does indirect labor or the combination of the two. The budgeted indirect cost rate is thus $48 per direct labor hour ($12,000,000 ¡Â 250,000).Answer (A) is incorrect because The amount of $20 results from improperly using only indirect labor costs in the numerator.
Answer (B) is incorrect because The amount of $28 results from improperly using only indirect nonlabor costs in the numerator.
Answer (C) is incorrect because The amount of $40 results from improperly using the total of direct and indirect labor hours as the allocation base.
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