Question

K Company estimates that overhead costs for the next year will be $3,600,000 for indirect labor and $950,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 104,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

Answer 1

$43.75 per direct labor Hour

Step-by-step explanation:

Overhead rate is the rate of allocation of overheads based on an activity. In this question direct labor is used as an activity. Total overhead of a plant also includes the utilities of the plant.

Total Overhead of plant = $3,600,000 + $950,000 = $4,550,000

Direct labor hours = 104,000 hours

We can calculate the overhead rate after dividing total overhead with total direct labor hours.

Plant-wide overhead rate = $4.550,000 / 104,000 = $43.75 per direct labor Hour