Final answer:
The predetermined overhead rate should be calculated using budgeted overhead costs and budgeted machine hours. The correct rate, in this case, is $19.50 per machine hour.
Step-by-step explanation:
The question involves the computation of the predetermined overhead rate, which is commonly used in managerial accounting to allocate overhead costs to cost objects.
The formula to calculate this rate is to divide the budgeted overhead costs by the budgeted base, which can be either the number of machine hours or direct labor hours.
The student has provided an incorrect definition, using direct labor hours instead of machine hours. Given the information provided by the student, the correct predetermined overhead rate should be calculated using machine hours, as follows:
predetermined overhead rate = budgeted overhead cost / budgeted machine hours
= $975,000 / 50,000 machine hours
= $19.50 per machine hour
This rate is then used to allocate overhead costs to products based on the actual machine hours used during production.