The total overhead expenses for a company are $10 M. The total labor cost for the whole company is $18 M. If a particular product has a direct labor of $3.6 M then the overhead expenses for this product is $6.4 M if overhead is based on direct labor costs.

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Quizplus · Accepted Answer

The overhead expenses for the product should be proportional to its share of the total labor cost. The product's direct labor cost is 20% of the total labor cost ($3.6M/$18M), so its overhead expenses should be 20% of the total overhead expenses, which is $2M ($10M * 0.2), not $6.4M.

The Total Overhead Expenses for a Company Are $10 M