Question

The following data relates to Patterson Company's estimated amounts for next year.

Estimated: Department 1 Department 2
Manufacturing overhead costs $50,000 $60,000
Direct labor hours 180,000 DLH 200,000 DLH
Machine hours 200,000 MH 400,000 MH
What is the company's plantwide overhead rate if direct labor hours are the allocation base?
(Round to two decimal places.)

Answer 1

To calculate the plantwide overhead rate with direct labor hours as the base, divide the estimated total overhead costs by the total direct labor hours. With an increased wage to $24 an hour, a firm may invest in machinery, potentially increasing productivity but reducing labor needs.

Step-by-step explanation:

When calculating a company's plantwide overhead rate using direct labor hours as the allocation base, you divide the total estimated overhead costs by the total estimated direct labor hours for the year. Unfortunately, the necessary numerical data to conduct this calculation isn't provided in the question. To answer the question fully, we would need the total estimated overhead costs and the total estimated direct labor hours.

Based on the scenario provided, if a company's wage has risen to $24 an hour, this increase in labor cost may encourage the firm to invest in more machinery. This could lead to union workers being more productive due to better physical capital equipment, but it may also result in the firm needing to hire fewer workers.