Find out overhead application rate, Cost Accounting

Find Out Overhead Application Rate

The given is the budget of Superb Engineering Works for the 2002 year

Factory overheads

Kshs 62,000

Direct labour cost

Kshs 98,000

Direct labour hours


Machine hours           


Actual labour hours were


Actual machine hours were


Actual direct labour costs were

         Kshs   50,000

Actual direct material costs were

Kshs 45,000


a) Find out the overhead application rate on the basis of

i. Direct labour hours

ii. Overhead costs

iii. Machine hours, and

iv. Direct labour cost

v. Production cost


i. Direct labour hours method

Overhead application rate (OAR) = 62,000/15,500

= Shs.0.4/labour hour

ii. Direct labour cost method

OAR = (62,000/98,000) * 100

= 63.27 percent

iii. Machine hour method

OAR = (62,000/50,000) * 100

Shs.1.24/machine hour

b) Overhead costs utilizing

i. Direct labour hours = 0.4 x 40000 = Shs 16000

ii. Direct labour cost = 63.27% x 50000 = Shs 31630

iii. Machine hours = 30,000 x 1.24 = Shs 37200

c) Production cost utilizing each of the methods


Prime cost


Total cost


i. Direct labour hours





ii. Direct labour cost





iii. Machine hours      






Posted Date: 2/5/2013 7:25:11 AM | Location : United States

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