Question

Arabica Manufacturing uses a predetermined overhead allocation rate based on the number of machine-hours. At the beginning of the year, it estimated total manufacturing overhead costs to be $1,010,000, total number of direct labor hours to be 5000, and total number of machine-hours to be 25,000 hours. What was the predetermined overhead allocation rate? (Round your answer to the nearest cent.)

Answer 1

The predetermined overhead rate allocation rate is $40.4 per machine hour.

Step-by-step explanation:

The predetermined overhead allocation rate is calculated as total manufacturing/total machine hours

Predetermined overhead allocation rate=$1010000/25000

Predetermined overhead rate =$40.4 per machine hour

Invariably,this is the overhead allocation rate that would be used in calculating overhead on each unit of output depending on the number of machine hours that each unit of output observed .

For instance, let us assume each of output takes 5 machine hours ,hence the overhead per unit of product will be $40.4*5 $202.

Also if one unit only consumes 0.5 machine hour,each unit of output would cost $20.2($40.4*0.5) in overhead