Question

X Company has the following estimated costs for 2020:

Direct materials $63,300

Direct labor 17,600

Factory supplies 18,500

Factory maintenance 29,500

Marketing research 40,300

Factory rent 49,400

Sales salaries 41,000

Factory insurance 62,000

X Company estimates that direct labor hours for the year will be 1,100, and machines will be operated for 70,000 hours. If overhead is allocated on the basis of direct labor hours, what will the 2020 overhead rate be?

Answer 1

Answer :

Direct labor hour rate is calculated based on Estimated factory overheads divided by Total Direct labor hours

Only factory overheads are considered

Direct Labor hour rate Factory supplies Factory maintenance Factory rent Factory insurance Total factory overheads $18,500 $29,500 $49,400 $62,000 $159,400 A Direct Labor hours Direct Labor hour rate 1,100 B $144.91 A/B