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.

Question

Quizplus · Accepted Answer

To calculate the overhead cost per unit, we need to divide the total overhead costs by the total direct labor hours, which gives us:

Total overhead costs / Total direct labor hours = ($1,600,000 + $400,000) / 50,000 = $40 per direct labor hour

Since each unit requires 5 direct labor hours, the overhead cost per unit is:

$40 x 5 = $200

Therefore, the statement is true.

Kinetic Company Estimates That Overhead Costs for the Next Year