Question

Collins Company forecasts in January that total overhead for the current year will be $12,000,000 and that total machine hours will be 200,000 hours. Year to date, the actual overhead is $8,000,000 and actual machine hours are 100,000 hours. If Collins Company uses a predetermined overhead rate based on machine hours for applying overhead, what is that overhead rate?

A. $80 per hour
B. $120 per hour
C. $66.67 per hour
D. $40 per hour
E. $60 per hour

Answer 1

The predetermined overhead rate is found by dividing the forecasted total overhead by the forecasted total machine hours, resulting in a rate of $60 per hour.

Step-by-step explanation:

The question asks for the calculation of the predetermined overhead rate based on machine hours for Collins Company. To calculate the rate, we divide the forecasted total overhead cost by the forecasted total machine hours. Using the information provided, the forecasted total overhead is $12,000,000 and the forecasted total machine hours are 200,000 hours. The overhead rate is therefore computed as $12,000,000 ÷ 200,000 hours, resulting in a rate of $60 per hour. This means the correct answer is E. $60 per hour.