Asked by Alexander Orton on May 08, 2024
Verified
K Company estimates that overhead costs for the next year will be $2,900,000 for indirect labor and $800,000 for factory utilities.The company uses direct labor hours as its overhead allocation base.If 80,000 direct labor hours are planned for this next year,what is the company's plantwide overhead rate?
A) $0.02 per direct labor hour.
B) $46.25 per direct labor hour.
C) $36.25 per direct labor hour.
D) $10 per direct labor hour.
E) $0.10 per direct labor hour.
Indirect Labor
This term describes labor costs not directly associated with the production of goods or services, such as maintenance and supervisory personnel.
Factory Utilities
Expenses associated with the utilities consumed in a factory, such as electricity, gas, and water, used during the manufacturing process.
Overhead Allocation Base
A measure or criterion used to distribute overhead costs among various products, services, or departments.
- Comprehend the strategies for distributing overhead expenses through different methods such as plantwide, departmental, and activity-based rates.
Verified Answer
AO
Andrew O'ConnorMay 09, 2024
Final Answer :
B
Explanation :
The plantwide overhead rate is calculated by dividing the total estimated overhead costs by the total estimated base activity. Here, the total overhead costs are $2,900,000 (indirect labor) + $800,000 (factory utilities) = $3,700,000. The total base activity is 80,000 direct labor hours. Therefore, the plantwide overhead rate is $3,700,000 / 80,000 hours = $46.25 per direct labor hour.
Learning Objectives
- Comprehend the strategies for distributing overhead expenses through different methods such as plantwide, departmental, and activity-based rates.