Peterson Company estimates that overhead costs for the next year will be $3,400,000 for indirect labor and $850,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 85,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round your answer to two decimal places.)

Question

Business

Bryan Evans

25 June, 10:59

Peterson Company estimates that overhead costs for the next year will be $3,400,000 for indirect labor and $850,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 85,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round your answer to two decimal places.)

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Mohammed Horton · Answer 1

Predetermined manufacturing overhead rate = $50 per machine-hour

Explanation:

Giving the following information:

Estimated overhead costs = $3,400,000 for indirect labor

Estimated overhead costs = $850,000 for factory utilities.

85,000 machine hours are planned for this next year

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

Predetermined manufacturing overhead rate = (3,400,000 + 850,000) / 85,000

Predetermined manufacturing overhead rate = $50 per machine-hour