Question

Kamper Company sells two products Big Z and Little Z. Current direct material and direct labor costs are detailed below. Next year, the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $493,000. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $25 per hour and the company expects to manufacture 50,000 units of Big Z and 27,000 units of Little Z next year.

Direct Material per Unit Direct Labor Dollars per Unit

Big Z $ 24 $ 20

Little Z $ 30 $ 14

What are total estimated direct labor hours for this next year?

Answer 1

The total estimated direct labor hours for this next year

Step-1, Calculation of Direct Labor hours per unit for each of two products

Direct Labor hours per unit = Direct Labor Dollars per Unit / Direct labor costs per hour

Big Z = 0.80 Direct labor hours per unit [$20.00 / $25.00]

Little Z = 0.56 Direct labor hours per unit [$14.00 / $25.00]

Step-2, The Calculation of the total estimated direct labor hours for this next year

The total estimated direct labor hours for this next year = [Number of units manufactured of Big Z x Direct Labor hours per unit] + [Number of units manufactured of Little Z x Direct Labor hours per unit]

= [50,000 units x 0.80 Direct labor hours per unit] + [27,000 units x 0.56 Direct labor hours per unit]

= 40,000 Direct labor hours + 15,120 Direct labor hours

= 55,120 Direct labor hours

“Therefore, the total estimated direct labor hours for this next year will be 55,120 Direct labor hours”