A company uses the departmental overhead rate method. Total overhead costs are $5,000,000. Of this total, the machining department is assigned overhead costs of $4,000,000 and the assembly department is allocated the remainder. The machining department uses machine hours as their allocation base and has 80,000 machine hours. The assembly department uses direct labor hours as their allocation base and has 50,000 direct labor hours. Calculate the overhead rate for the machining department.

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Business

Kolby

17 July, 00:43

A company uses the departmental overhead rate method. Total overhead costs are $5,000,000. Of this total, the machining department is assigned overhead costs of $4,000,000 and the assembly department is allocated the remainder. The machining department uses machine hours as their allocation base and has 80,000 machine hours. The assembly department uses direct labor hours as their allocation base and has 50,000 direct labor hours. Calculate the overhead rate for the machining department.

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Mia Kerr · Answer 1

Estimated manufacturing overhead rate = $50 per machine hour

Explanation:

Giving the following information:

The machining department uses machine hours as its allocation base and has 80,000 machine hours. The machining department is assigned overhead costs of $4,000,000.

Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base = 4000000/80000 = $50 per machine hour