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Unilever Depot, Inc. had the following estimated costs for next year:
Sales
commissions
|
$600,000
|
Direct
labor
|
440,000
|
Salary
of production supervisor
|
280,000
|
Rent
on factory equipment
|
128,000
|
Direct
materials
|
120,000
|
Advertising
expense
|
88,000
|
Indirect
materials
|
40,000
|
The company
estimates that 64,000 direct labor hours will be worked and 80,000 machine
hours will be incurred during the year.
If overhead is
applied on the basis of direct labor hours, what will be the overhead rate per
hour?
If overhead is
applied on the basis of direct labor hours, the predetermined overhead rate
would be calculated as follows:
Indirect
materials
|
$ 40,000
|
Rent
on factory equipment
|
128,000
|
Salary
of production supervisor
|
280,000
|
Estimated
manufacturing overhead costs
|
448,000
|
Estimated
direct labor hours
|
¸ 64,000
|
Predetermined
overhead rate
|
$7.00/DLH
|
Note that
direct materials and direct labor are product costs but are not a part of
manufacturing overhead costs, which only include indirect factory costs. Sales
commissions and advertising expenses would be considered a part of selling and
administrative expenses, and are thus period rather than product costs.