Question

Peterson Company estimates that overhead costs for the next year will be $6,820,000 for indirect labor and $820,000 for factory utilities. The company uses machine hours as its overhead allocation base. Of 120,000 machine hours are planned for this next year, what is the company's plantwide overhead rate?

Answer 1

$63.67 per machine hour

Step-by-step explanation:

The indirect labor cost and factory utilities are components of the company's plant wide overhead cost. The plantwide overhead cost is usually considered in estimation as a factor influenced by units such as direct labor hours, direct machine hours etc

Given that the base for determining the plantwide overhead cost is machine hours

The company's plantwide overhead rate

= ($6,820,000 + $820,000)/120,000

= $63.67 per machine hour