Question

Peterson Company estimates that overhead costs for the next year will be $6,520,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 140,000 machine hours are planned for this next year, what is the company's plantwide overhead rate?
a. $.02147 per machine hour.
b. $50.50 per machine hour.
c. $45.75 per machine hour.
d. $3.9286 per machine hour.
e. $.2545 per machine hour.

Answer 1

Answer:

The correct option is B,$50.50

Explanation:

The company's plantwide overhead rate is computed by dividing total budgeted overhead costs by the planned machine hours which is the overhead allocation base:

Plantwide overhead rate=Total budgeted overhead/machine hours

total budgeted overhead =$6,520,000+$550,000

                                           =$7,070,000

budgeted machine hours is 140,000 hours

plantwide overhead rate=$7,070,000/140,000

                                         =$50.50

Answer 2

Answer:

b. $50.50 per machine hour.

Explanation:

Overhead costs are defined as the amount that is spent by a business that is not directly contributing to the product. For example overhead can be labour cost, rent, utilities, and insurance.

These do not contribute directly to the product. Direct cost such as are materials contribute directly to the product.

In the case the overhead costs are given as $6,520,000 for indirect labor and $550,000 for factory utilities.

Total overhead= 6,520,000 + 550,000

Total overhead= $7,070,000

Overhead Cost per hour= Total overhead ÷ Total machine hours

Overhead cost per hour= 7,070,000 ÷ 140,000= $50.50