Question

K Company estimates that overhead costs for the next year will be "$3,000,000" for indirect labor and $810,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 75,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

Answer 1

$50.80

Step-by-step explanation:

The company's plant-wide overhead rate is computed by dividing the total overhead budgeted by the overhead allocation base.

Total overhead as budgeted =indirect labor cost+factory utilities

indirect labor cost is $3,000,0000

factory utilities is $810,000

total budgeted overhead=$3,000,000+$810,000=$3,810,000

overhead allocation =direct labor hours=75,000 hours

plant-wide overhead rate=$3,810,000/75000=$50.80 per hour

Overhead of $3,810,000 would be applied on the basis of $50.80 per direct labor hour