A company estimates that overhead costs for the next year will be $8,320,000 for indirect labor and $155,500 for factory utilities.The company uses machine hours as its overhead allocation base.If 400,000 machine hours are planned for this next year,what is the company's plantwide overhead rate? $\bold{\text{(Round your answer to two decimal places.) }}$

A) $0.05 per machine hour.
B) $21.19 per machine hour.
C) $20.80 per machine hour.
D) $0.39 per machine hour.
E) $2.57 per machine hour.

Question

A company estimates that overhead costs for the next year will be $8,320,000 for indirect labor and $155,500 for factory utilities.The company uses machine hours as its overhead allocation base.If 400,000 machine hours are planned for this next year,what is the company's plantwide overhead rate?

\bold{\text{(Round your answer to two decimal places.) }}

A) $0.05 per machine hour.
B) $21.19 per machine hour.
C) $20.80 per machine hour.
D) $0.39 per machine hour.
E) $2.57 per machine hour.

Tykeria Steward · Accepted Answer

Final Answer : B, Explanation :  The company's plantwide overhead rate is calculated by dividing the total estimated overhead costs by the total estimated machine hours. The total overhead costs are $8,320,000 (indirect labor) + $155,500 (factory utilities) = $8,475,500. Dividing this by the planned machine hours (400,000) gives a rate of $21.19 per machine hour.

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