K Company estimates that overhead costs for the next year will be $2,400,000 for indirect labor and $900,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 110,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

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Business

Averie Vazquez

31 May, 08:26

K Company estimates that overhead costs for the next year will be $2,400,000 for indirect labor and $900,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 110,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?

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Karla Mckenzie · Answer 1

Estimated manufacturing overhead rate = $30 per direct labor hour

Explanation:

Giving the following information:

Indirect labor = $2,400,000

Factories utility = $900,000

Total overhead = 3,300,000

Direct labor hours = 110,000

To calculate the estimated manufacturing overhead rate we need to use the following formula:

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

Estimated manufacturing overhead rate = 3,300,000/110,000 = $30 per direct labor hour