Question

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?

Answer 1

To compute for the overhead rate, we must take the proportion of the total indirect cost over the direct labor cost.

Overhead rate = Indirect Cost/ Direct labor cost

Total projected overhead cost = $2900000+ $800000
                                                    =$3700000
Overhead rate= $3700000/$80000
Overhead rate = 46.25The overhead rate of the K company is 46.25