Question

Davis Company has analyzed its overhead costs and derived a general formula for their behavior: $65,000 + $14 per direct labor hour employed. The company expects to use 50,000 direct labor hours during the next accounting period. What overhead rate per direct labor hour should be applied to jobs worked during the period?

Answer 1

Answer:

$15.3 per direct labor hour

Explanation:

Overhead costs are those costs which are incurred for the manufacturing of the product but not directly attributable to any product / service. It can be variable or fixed.

Formula for overhead costs = $65,000 + $14 per direct labor hour

Numbers of direct labor hours = 50,000 hours

Total Cost = $65,000 x ($14 x 50,000 ) = $765,000

Over head rate per direct labor hour  = Total overhead cost / Numbers of direct labor hours = $765,000 / 50,000 = $15.3 per direct labor hour