Asked by Raheal Pasha on May 08, 2024
Verified
Kinetic Company estimates that overhead costs for the next year will be $1,600,000 for indirect labor and $400,000 for factory utilities.The company uses direct labor hours as its overhead allocation base,and plans to use 50,000 direct labor hours for this next year.If a product uses 5 direct labor hours,then it will be assigned $200 in overhead costs.
Overhead Allocation Base
A measure or activity, such as direct labor hours or machine hours, used to allocate overhead costs to products or services.
Direct Labor Hours
Direct labor hours represent the total hours worked by employees directly involved in producing goods or providing services in a manufacturing or service setting.
Overhead Costs
Expenses related to the operation of a business that cannot be directly tied to a specific product or service.
- Appreciate the application of direct labor hours and machine hours in serving as allocation bases in assorted overhead costing frameworks.
Verified Answer
JB
Jesus BritoMay 11, 2024
Final Answer :
True
Explanation :
To calculate the overhead cost per unit, we need to divide the total overhead costs by the total direct labor hours, which gives us:
Total overhead costs / Total direct labor hours = ($1,600,000 + $400,000) / 50,000 = $40 per direct labor hour
Since each unit requires 5 direct labor hours, the overhead cost per unit is:
$40 x 5 = $200
Therefore, the statement is true.
Total overhead costs / Total direct labor hours = ($1,600,000 + $400,000) / 50,000 = $40 per direct labor hour
Since each unit requires 5 direct labor hours, the overhead cost per unit is:
$40 x 5 = $200
Therefore, the statement is true.
Learning Objectives
- Appreciate the application of direct labor hours and machine hours in serving as allocation bases in assorted overhead costing frameworks.