Question

A plant's fixed overhead costs total $500,000 for a year to produce 400,000 widgets, among other items. If machine‐hours are used as an allocation base, all processes use a total of 40,000 machine‐hours, and widgets use 16,000 of these hours, what is the fixed overhead applied to each widget? Group of answer choices

Answer 1

$0.5

Step-by-step explanation:

A plant's fixed total overhead cost is $500,000 for a year

400,000 widgets are required to be produced for this period

All processes require a 40,000 machine hours and the widgets use 16,000 hours out of the total hours

The first step is to calculate the fixed overhead application rate

= $500,000/40,000

= $12.5 machine-hour

The fixed overhead that is applied to the widgets can be calculated as follows

= $12.5 × 16,000

= $200,000

Therefore, the fixed overhead that is applied to each of the widgets produced can be calculated as follows

= 200,000/400,000

= $0.5

Hence the fixed overhead that is applicable to each widgets is $0.5