implex Company has the following estimated costs for next year: Direct materials $15,000Direct labour 55,000Sales commissions 75,000Salary of production supervisor 35,000Indirect materials 5,000Advertising expenses 11,000Rent on factory equipment 16,000Simplex estimates that 10,000 direct labour and 16,000 machine hours will be worked during the year. If overhead is applied on the basis of machine hours, what will be the overhead rate per hour?
Question
implex Company has the following estimated costs for next year: Direct materials $15,000Direct labour 55,000Sales commissions 75,000Salary of production supervisor 35,000Indirect materials 5,000Advertising expenses 11,000Rent on factory equipment 16,000Simplex estimates that 10,000 direct labour and 16,000 machine hours will be worked during the year. If overhead is applied on the basis of machine hours, what will be the overhead rate per hour?
Solution
To calculate the overhead rate per hour, we first need to identify the overhead costs. Overhead costs are those costs that are not directly attributable to the production of goods, such as indirect materials and rent on factory equipment.
From the given data, the overhead costs are:
Indirect materials: 16,000 Salary of production supervisor: $35,000
Adding these together, the total overhead costs are $56,000.
Next, we need to divide the total overhead costs by the total machine hours to get the overhead rate per hour.
So, 3.5 per hour.
Therefore, the overhead rate per hour is $3.5.
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