Question

Kinetic Company estimates that overhead costs for the next year will be $1,600,000 for indirect labor and $400,000 for factory utilities. The company uses direct labor hours as its overhead allocation base, and plans to use 50,000 direct labor hours for this next year. If a product uses 5 direct labor hours, then it will be assigned $200 in overhead costs.a. True
b. False

Answer 1

Answer:

The correct answer is "False".

Explanation:

The given values are:

Indirect labor,

= $1,600,000

Factory utilities,

= $400,000

Direct labor hours,

= $50,000

Now,

The plantwide overhead rate will be:

= $\frac{Indirect \ labor +Factory \ utilities}{Direct \ labor \ hours}$

On substituting the values, we get

= $\frac{1,600,000+400,000}{50,000}$

= $\frac{2,000,000}{50,000}$

= $40$ ($) direct labor per hour

Thus the above is the right response.