Question

K Company estimates that overhead costs for the next year will be $2,967,000 for indirect labor and $860,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 86,000 direct labor hours are planned for this next year, how much overhead would be assigned to a product requiring 6 direct labor hours

Answer 1

$267.00

Step-by-step explanation:

First and foremost, it should be borne in mind that the overhead per direct labor hour is the total forecast overhead costs for next year divided by the planned direct labor hours, in essence, we simply determine plantwide overhead allocation rate, which is the basis for determining the amount of direct to be assigned to 6 direct labor hours

plantwide overhead allocation rate=(indirect labor overhead+factory utilities)/planned direct labor

indirect labor overhead cost=$2,967,000

factory utilities=$860,000

planned direct labor hours=86,000

plantwide overhead allocation rate=($2,967,000+$860,000)/86000

plantwide overhead allocation rate=$44.50

overhead allocation to a product requiring 6 direct labor hours=6*$44.50

overhead allocation to a product requiring 6 direct labor hours=$267.00