Question

Peterson Company estimates that overhead costs for the next year will be $3,600,000 for indirect labor and $880,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 125,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round your answer to two decimal places.)

Answer 1

Answer:

$35.84 plantwide overhead rate.

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

We have to distribute the total overhead cost by the cost driver. In this case, machine hours

3,600,000 indirect labor + 880,000 factory utilities = 4,480,000 total overhead

cost driver:  125,000 machine hours

4,480,000 / 135,000 = $35.84 plantwide overhead rate.