Question

California Company uses a predetermined overhead rate based on machine hours to apply overhead. The company has the following estimated costs for next year:

Direct materials: 10,000
Direct labour: 30,000
Sales commissions: 40,000
Salary of production supervisor: 20,000
Indirect materials: 4000
Advertising expense: 8000
Rent on factory equipment: 10000

California Company estimates that 10,000 machine hours will be worked during the year. The predetermined overhead rate per machine hour will be:__________

Answer 1

$3.40 Per Machine Hour

Step-by-step explanation:

The computation of the predetermined overhead rate is shown below:

As we know that

Predetermined overhead rate is

= Estimated manufacturing overhead ÷ estimated machine hours

where,

Estiamted Manuafctuing overheads is

= Salary of Prodcution Supervisior + Indirect Material + rent on Factory Equipment

= $20,00 + $4,000 + $10,000

= $34,000

And, the estimated machine hours is 10,000

So, the predetermined overhead rate is

= $34,000 ÷ 10,000

= $3.40 Per Machine Hour