Question

Anton believes his company's overhead costs are driven (affected) by the number of machine hours because the production process is heavily automated. During the period, the company produced 3,000 units of Product A requiring a total of 200 machine hours and 2,000 units of Product B requiring a total of 50 machine hours. What allocation rate should be used if the company incurs overhead costs of $10,000?

Answer 1

Allocation rate is $40

Step-by-step explanation:

The overhead cost allocation rate is the overhead costs incurred divided by the appropriate overhead driver.

The driver is that factor that causes overhead to be incurred.Since the company production process is heavily automated,the driver of overhead is machine hours.

The total machine hours in this regard is 250(200 hours for Product A while it is 50 hours for product B)

Overhead allocation rate=$10,000/250=$40