If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours are 80,000, and the actual direct labor hours are 6,700 for the month, the factory overhead rate for the month is $68.

Question

(if the allocation is based on direct labor hours).

Answer 1

To calculate the factory overhead rate, divide the budgeted factory overhead cost by the budgeted direct labor hours:

Factory overhead rate = Budgeted factory overhead cost / Budgeted direct labor hours
Factory overhead rate = $460,000 / 80,000
Factory overhead rate = $5.75

Therefore, the factory overhead rate for the month is $5.75 per direct labor hour.

However, if you are given that the actual direct labor hours for the month were 6,700, you need to recalculate the factory overhead rate using the actual direct labor hours:

Factory overhead rate = Budgeted factory overhead cost / Actual direct labor hours
Factory overhead rate = $460,000 / 6,700
Factory overhead rate = $68.66

Therefore, the factory overhead rate for the month, based on the actual direct labor hours, is $68.66 per direct labor hour.