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. If 50,000 direct labor hours are planned for this next year, then the plantwide overhead rate is $.025 per direct labor hour.

Question

Quizplus · Accepted Answer

The plantwide overhead rate would be calculated as follows: 
($1,600,000 + $400,000)/50,000 direct labor hours = $40 per direct labor hour.
Therefore, the statement "the plantwide overhead rate is $.025 per direct labor hour" is false.

Kinetic Company Estimates That Overhead Costs for the Next Year