Question

Peterson Company estimates that overhead costs for the next year will be $6,520,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 140,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round your answer to two decimal places.)

Answer 1

$50.50 per machine-hour

Step-by-step explanation:

The computation of the plant wide overhead rate is shown below:

Plant wide Overhear Rate = Estimated Manufacturing Overhead ÷ Expected Machine-hours

where,

Estimated Manufacturing Overhead = Estimated Indirect Labor + Estimated Factory Utilities

= $6,520,000 + $550,000

= $7,070,000

And, the expected machine hours is 140,000

So, the plant wide overhead rate is

= $7,070,000 ÷ 140,000 machine hours

= $50.50 per machine-hour