Question

Riverview Company's budget for the coming year includes $7,000,000 for manufacturing overhead, 40,000 hours of direct labor, and 200,000 hours of machine time. If Riverview applies overhead using a predetermined rate based on machine-hours, what amount of overhead will be assigned to a unit of output which requires 0.4 machine hours and 0.30 labor hours to complete

Answer 1

$70

Step-by-step explanation:

With regards to the above, we need to compute first the overhead application rate.

Overhead application rate = Budgeted overhead / Budgeted activity/Budgeted machine hour

= $7,000,000 / 40,000 labor hours

= $175

Overhead application rate = $175 per direct labor hour

Assigned overhead = Overhead application rate × Number of machine hours consumed

= $175 × 0.4

= $70