Bob's Biscuit Corporation budgeted $1,200,000 of factory overhead cost for the coming year. Its plantwide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Bob's plantwide factory overhead rate is $12.00 per machine hour. A. True B. False

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Business

Rodolfo Mckinney

2 March, 09:02

Bob's Biscuit Corporation budgeted $1,200,000 of factory overhead cost for the coming year. Its plantwide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Bob's plantwide factory overhead rate is $12.00 per machine hour. A. True B. False

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Krause · Answer 1

A. True

Explanation:

The overheads are absorbed either by using an overall overhead rate or using ABC costing when there are two or more products. It is a company's policy decision to use either of the two methods for overhead absorption.

The formula for calculating the Overhead Absorption Rate (OAR) is,

OAR = Budgeted Overheads / Budgeted Activity Level

Here, we have budgeted overheads as $1200000 while the budgeted activity over which overheads will be absorbed is Machine Hours.

OAR = 1200000 / 100000 = $12 / Machine Hour so the Answer is True