Cotta Cots uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labor-hours (DLHs). During August, the company actually used 6,100 direct labor-hours and produced 2,500 units of product. The standard cost card for one unit of product includes the following data for manufacturing overhead:
To find the manufacturing overhead rate per direct labor hour (DLH), you need to divide the total manufacturing overhead cost by the total direct labor-hours.
Let's assume that the standard cost card for one unit of product includes the following data for manufacturing overhead:
- Total manufacturing overhead cost: $10,000
- Total direct labor-hours: 5,000 DLHs
To calculate the manufacturing overhead rate per DLH:
Manufacturing overhead rate per DLH = Total manufacturing overhead cost / Total direct labor-hours
Manufacturing overhead rate per DLH = $10,000 / 5,000 DLHs
Manufacturing overhead rate per DLH = $2 per DLH
So, the manufacturing overhead rate per DLH is $2.