Assume that the Assembly Department allocates overhead using a plantwide overhead rate based on machine hours. How much total overhead will be assigned to a product that requires 1 direct labor hour and 2.5 machine hours in the Assembly Department, and 3.5 direct labor hours and 0.5 machine hours in the Finishing Department?

Instructions are listed below.

Explanation:

Giving the following information:

Assume that the Assembly Department allocates overhead using a plantwide overhead rate based on machine hours.

The first thing that we need is the predetermined overhead rate. We weren't provided with this information, but I will give the formula and a small example to guide an answer:

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

For example:

Estimated overhead = $200,000

Estimated machine hours = 35,000

Estimated manufacturing overhead rate = 200,000/35,000 = $5.71 per machine hour

Now, we can allocate overhead:

Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

Because it is a plantwide overhead rate, we need to sum the total machine hours required:

Machine hours = 2.5 + 0.5 = 3 machine hours

Allocated MOH = 5.71*3 = $17.13 per unit