Question

William is working with the controller of his company on the year-end financial statements. Earlier in the year, a long-time employee of the accounting department retired. The employee failed to leave any notes regarding her work before she left. William and the controller can see that $565,175 of manufacturing overhead has been applied throughout the year. Further, they can see that the company has incurred $63,425 of direct labor cost and $66,518 of direct materials. The company’s pay rate for direct labor is $12.30 per hour. If the retired employee applied overhead based on direct labor hours, what rate did she use to apply overhead (if necessary, round your answer)?

Answer 1

Answer: $110 per direct labor hour

Step-by-step explanation:

Since the rate is based on labor hours, the number of labor hours needs to be found.

With the total cost of direct labor being $63,425 and the rate being $12.30 per hour, the total number of hours is;

= 63,425/12.30

= 5,156.50 hours

Overhead incurred is $565,175. Rate will therefore be;

= 565,175/ 5,156.50

= 109.60

= $110 per direct labor hour