Question

X Company estimates that direct labor hours for the year will be 1,400, and machines will be operated for 65,000 hours. If overhead is allocated on the basis of machine hours, what will the 2020 overhead rate be. The answer is not 7.23 or 2.38.

X Company has the following estimated costs for 2020: Direct materials Direct labor Factory supplies Factory supervision Advertising Factory rent Sales salaries Factory insurance $59,600 22,400 18,600 29,800 41,300 47,200 50,000 66,300 X Company estimates that direct labor hours for the year will be 1,400, and machines will be operated for 65,000 hours. If overhead is allocated on the basis of machine hours, what will the 2020 overhead rate be?

Answer 1

Correct answer---------2.49 per machine hour

Working

Budgeted Manufacturing Overheads	$ 161,900
Budgeted Machine hours	65,000
Predetermined Overhead rate	$                   2.49

..

Factory supplies	$    18,600.00
Factory supervision	$    29,800.00
Factory rent	$    47,200.00
Factory insurance	$    66,300.00
Total expected Overheads	$ 161,900.00

Direct material and direct labor are not overheads. Similarly Advertising, Sales salaries are not overhead. All overheads are costs of factory except Direct material and direct labor.