Question

K Company estimates that overhead costs for the next year will be $6,520,000 for indirect labor and $1,200,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 160,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?
$0.13 per direct labor hour.

$7.50 per direct labor hour.

$40.75 per direct labor hour.

$48.25 per direct labor hour.

$0.27 per direct labor hour

Answer 1

Answer:

The correct answer is C.

Explanation:

Giving the following information:

K Company estimates that overhead costs for the next year will be $6,520,000 for indirect labor and $1,200,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. 160,000 direct labor hours are planned for this next year.

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= (6,520,000 + 1,200,000)/160,000= $48.25 per direct labor hour.