Asked by Heidi Canaveral on Jul 03, 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.If 50,000 direct labor hours are planned for this next year,then the plantwide overhead rate is $.025 per direct labor hour.
Overhead Allocation Base
A measure or activity, such as direct labor hours or machine hours, used to assign overhead costs to products or services.
Direct Labor Hours
The total hours worked directly on a product or service by employees in the production process.
Overhead Rate
A measure used to allocate overhead costs to produced goods, calculated by dividing total overheads by an allocation base, such as labor hours.
- Comprehend the principle of distributing overhead costs and its importance in the context of managerial choices.
- Identify the role of direct labor hours and machine hours as bases for allocation in several overhead costing techniques.
Verified Answer
AR
Austin RatajczykJul 09, 2024
Final Answer :
False
Explanation :
The plantwide overhead rate is calculated by dividing the total estimated overhead costs by the total estimated base activity (in this case, direct labor hours). The total estimated overhead costs are $1,600,000 for indirect labor plus $400,000 for factory utilities, which equals $2,000,000. Dividing this by the 50,000 direct labor hours planned for the next year gives an overhead rate of $40 per direct labor hour ($2,000,000 / 50,000 hours).
Learning Objectives
- Comprehend the principle of distributing overhead costs and its importance in the context of managerial choices.
- Identify the role of direct labor hours and machine hours as bases for allocation in several overhead costing techniques.