Question

The following cost functions were developed for manufacturing overhead costs: Manufacturing Overhead Cost Cost Function Electricity $200 + $20 per direct labor hour Maintenance $400 + $30 per direct labor hour Supervisors' salaries $20,000 per month Indirect materials $16 per direct labor hour

If June production is expected to be 2,000 units requiring 3,000 direct labor hours, what is the estimated manufacturing overhead costs? Also discuss the role of direct labor hours in determining the predetermined overhead rates.

Answer 1

Notes:
	Caclulation of Total Manufacturing overhead Cost
	Fixed Electricity Cost	$                             200
	Maintenance	$                             300
	Supervisor Salary	$                       20,000
	Total Overhead Cost	$                       20,500
Solution: 1
	CACLULATION OF OVERHEAD APPLICATION RATE PER MAHCINE HOURS
	Overhead Application Rate =	Estimated Fixed Manufacturing Overhead Cost	"/"	Estimated Direct Labor Hours	"="	Estimated Overhead rate PER Machine Hrs
	Overhead Application Rate =	$                       20,500	"/"	3,000	"="	$                       6.83
	Answer = Predetermined Overhead Rate = $ 6.83 Per DLH
Solution: 2
	All manufacturing expenses is depend on direct labor hours. There is some variable expenses and some fixed expenses. Fixed
	overhead are divided on the basis of total hours utlized in production. So fixed overhead can be divided on the basis of estimated
	total direct labor hours utilized during the period.