Question

A manufacturing company has the following budgeted overhead costs: Indirect materials: $0.50 per unit; Utilities: $0.25 per unit; Supervisory salaries: $60,000; Building rent: $80,000. If the company expects to produce 200,000 units using 100,000 hours of direct labor, the standard overhead rate will be $ per direct labor hour.

Answer 1

Answer:

Total overhead                       $

Indirect material ($0.5 x 200,000 units) = 100,000

Utilities ($0.25 x 200,000 units)             = 50,000

Supervisory salaries                                 = 60,000

Building rent                                              = 80,000

Total overhead                                             290,000

Overhead rate                = Budgeted overhead

                                           Budgeted direct labour hours

                                         = $290,000

                                              100,000 hours

                                         = $2.90 per direct labour hour

Explanation:

In this case, we need to obtain the total overhead, which is the total of indirect material, utilities, supervisory salaries and building rent.

Then, we will divide the total overhead by direct labour hours so as to determine the overhead rate.

Answer 2

Based on the various costs to the manufacturing company, the standard overhead rate will be $2.90.

What is the overhead rate?

This can be found by the formula:

= (Overhead costs) / Direct labor hours

= (Indirect materials + Utilities + Supervisory salaries + Building rent) / Direct labor hours

Solving gives:

= ((200,000 x 0.50) + (200,000 x 0.25) + 60,000 + 80,000) / 100,000

= 290,000 / 100,000

= $2.90

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