Question

A manufacturing company has variable overhead costs of $2.50 per unit and fixed costs of $5,000 per month. Each unit requires 4 hours of direct labor and the company expects to produce 2,000 units each month. The standard overhead rate will be

Answer 1

Answer:

Standard Overhead rate is $1.25 per Direct labor hours

Explanation:

Total variable cost (2000 unit * $2.50) =    $5,000

Total fixed cost                                       =    $5,000

Estimated Overhead cost                     =     $10,000

Estimated Direct labor hour = 2000 unit * 4 hours = 8,000 hours

Standard Overhead rate = Estimated overhead cost / Estimated Direct labor hour

Standard Overhead rate = $10,000 / 8,000 hours

Standard Overhead rate = $1.25 per Direct labor hours