Question

West Company estimates that overhead costs for the next year will be $5,240,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 150,000 machine hours are planned for this next year, what is the company's plantwide overhead rate?

Answer 1

$38.60 per machine hour

Step-by-step explanation:

The computation of the plant wide overhead rate is shown below:

= (Indirect labor + factory utilities) ÷ (Planned machine hours)

= ($5,240,000 + $550,000) ÷ (150,000 machine hours)

= ($5,790,000) ÷ (150,000 machine hours)

= $38.60 per machine hour

The sum of Indirect labor and factory utilities is also called overhead