Kirsten believes her company\'s overhead costs are driven (affected) by the numb
ID: 2494042 • Letter: K
Question
Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 5,000 units of Product A requiring a total of 1,600 labor hours and 2,500 units of Product B requiring a total of 400 labor hours. What allocation rate should be used if the company incurs overhead costs of $20,000? a. $10 per labor hour b. $2.67 per unit c. $12.50 per labor hour for Product A and $50 per labor hour for Product B D. None of these.
Explanation / Answer
A) $10 per hour
Overhead = $20,000
Total labor hours = 1600 + 400 = 2000 hours
Overhead rate = $20,000/ 2000 = $10 per hour
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