Question

Peterson Company estimates that overhead costs for the next year will be $3,500,000 for indirect labor and $940,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 100,000 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

Estimated overhead costs = Indirect labor + Factory utilities

= 3,500,000 + 940,000

= $4,440,000

Estimated machine hour = 100,000

Plantwide overhead rate = Estimated overhead cash/Estimated machine hour

= 4,440,000/100,000

= $44.4 per machine hour

Total estimated manufacturing overhead costs = 1,280,000 +3,480,000

= $4,760,000

Total estimated direct labor hours = 549,000 + 799,000

= $1,348,000

Plantwide overhead rate = Total estimated manufacturing overhead costs/Total estimated direct labor hours

= 4,760,000/1,348,000

= $3.53 per direct labor hour

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