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A manufacturing company has the following budgeted overhead costs: Indirect materials: $0.50 per unit; Utilities: $0.25 per unit; Supervisory salaries: $60,000; Building rent: $80,000. If the company expects to produce 200,000 units using 100,000 hours of direct labor, the standard overhead rate will be $ per direct labor hour.

Question

A manufacturing company has the following budgeted overhead costs: Indirect materials: 0.50perunit;Utilities:0.50 per unit; Utilities: 0.25 per unit; Supervisory salaries: 60,000;Buildingrent:60,000; Building rent: 80,000. If the company expects to produce 200,000 units using 100,000 hours of direct labor, the standard overhead rate will be $ per direct labor hour.

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Solution

To calculate the standard overhead rate per direct labor hour, we first need to calculate the total overhead costs and then divide it by the total direct labor hours.

Step 1: Calculate the total overhead costs The total overhead costs include both variable and fixed costs. The variable costs are the indirect materials and utilities, which depend on the number of units produced. The fixed costs are the supervisory salaries and building rent, which do not change with the number of units produced.

Variable costs: Indirect materials: 0.50perunit200,000units=0.50 per unit * 200,000 units = 100,000 Utilities: 0.25perunit200,000units=0.25 per unit * 200,000 units = 50,000

Fixed costs: Supervisory salaries: 60,000Buildingrent:60,000 Building rent: 80,000

Total overhead costs = Variable costs + Fixed costs = 100,000+100,000 + 50,000 + 60,000+60,000 + 80,000 = $290,000

Step 2: Calculate the standard overhead rate The standard overhead rate is the total overhead costs divided by the total direct labor hours.

Standard overhead rate = Total overhead costs / Total direct labor hours = 290,000/100,000hours=290,000 / 100,000 hours = 2.90 per direct labor hour.

So, the standard overhead rate is $2.90 per direct labor hour.

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