Question

MaverickMaverick Co. budgets production of 120 comma 000120,000 units in the next year. MaverickMaverick​'s CFO expects that each unit will take 1010 hours to produce at an hourly wage rate of $ 12$12 per hour. If factory overhead is applied to direct labor hours at $ 3$3 per​ hour, the budget for factory overhead will​ total: A. $ 18 comma 000 comma 000$18,000,000 B. $ 3 comma 600 comma 000$3,600,000 C. $ 4 comma 320 comma 000$4,320,000 D. $ 14 comma 400 comma 000$14,400,000 C

Answer 1

B. $ 3 comma 600 comma 000$3,600,000

Step-by-step explanation:

The total manufacturing cost of an entity maybe divided into two broad classes. These are direct and indirect cost. The indirect cost are also known as the overheads and may be further divided into fixed and variable overheads. The variable overheads may be given as a function of direct cost such as machine hours, direct labor hours etc.

Given that

Total units to be produced = 120,000

Time required to produce a unit = 10 hours

Hence total number of hours required

= 120,000 × 10

= 1,200,000 hours

Hourly wage rate = $12

If Factory overheads is applied to direct labor hours at $3 per​ hour

Factory overheads = $3 × 1,200,000

= $3,600,000