Question

Sweeten Company had no jobs in progress at the beginning of the year and no beginning inventories. It started, completed, and sold only two jobs during the year—Job P and Job Q. The company uses a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, it estimated that 4,000 machine-hours would be required for the period's estimated level of production. Sweeten also estimated $33,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of $3.70 per machine-hour.

Because Sweeten has two manufacturing departments—Molding and Fabrication—it is considering replacing its plantwide overhead rate with departmental rates that would also be based on machine-hours. The company gathered the following additional information to enable calculating departmental overhead rates:
MoldingFabricationTotalEstimated total machine-hours used2,5001,5004,000Estimated total fixed manufacturing overhead$ 15,000$ 18,000$ 33,000Estimated variable manufacturing overhead per machine-hour$ 3.40$ 4.20
The direct materials cost, direct labor cost, and machine-hours used for Jobs P and Q are as follows:
Job PJob QDirect materials$ 33,000$ 18,000Direct labor cost$ 37,000$ 15,500Actual machine-hours used: Molding3,7002,800Fabrication2,6002,900Total6,3005,700

Sweeten Company had no overapplied or underapplied manufacturing overhead costs during the year.

Required:For questions 1-8, assume that Sweeten Company uses a plantwide predetermined overhead rate with machine-hours as the allocation base. For questions, 9-15, assume that the company uses predetermined departmental overhead rates with machine-hours as the allocation base in both departments.

What is the company's plantwide predetermined overhead rate? (Round your answer to 2 decimal places.)

Answer 1

The plantwide predetermined overhead rate for Sweeten Company is calculated by dividing the estimated total fixed and variable manufacturing overhead costs by the estimated total machine-hours, resulting in a rate of $11.95 per machine-hour.

Step-by-step explanation:

To calculate the company's plantwide predetermined overhead rate, we divide the estimated total fixed manufacturing overhead cost by the estimated total machine-hours for the period. From the provided information:

• Estimated total fixed manufacturing overhead cost = $33,000
• Estimated variable manufacturing overhead per machine-hour = $3.70
• Estimated total machine-hours = 4,000 hours

We start by calculating the total estimated manufacturing overhead cost which includes both fixed and variable components.

Total variable manufacturing overhead = Variable rate per machine-hour × Total estimated machine-hours
= $3.70 per machine-hour × 4,000 machine-hours
= $14,800

Then,

Total estimated manufacturing overhead = Fixed overhead + Variable overhead
= $33,000 + $14,800
= $47,800

Now, we can determine the plantwide predetermined overhead rate:

Plantwide Predetermined Overhead Rate = Total estimated manufacturing overhead ÷ Estimated total machine-hours
= $47,800 ÷ 4,000 machine-hours
= $11.95 per machine-hour (rounded to two decimal places)