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. If 120,000 machine hours are planned for this next year, what is the company's plantwide overhead rate?

Answer 1

Estimated manufacturing overhead rate= $63.67 per machine hour

Step-by-step explanation:

Giving the following information:

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. 120,000 machine hours are planned for this next year.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= (6,820,000 + 820,000)/120,000= $63.67 per machine hour