Question

West Company estimates that overhead costs for the next year will be $5,240,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 150,000 machine hours are planned for this next year, what is the company's plantwide overhead rate?

$.0259 per machine hour.

$34.93 per machine hour.

$38.60 per machine hour.

$3.67 per machine hour.

Answer 1

Concepts and reason

Manufacturing overhead: Manufacturing overhead is the cost incurred by an entity for producing the product which is sold during the period and such cost is not directly linked with the level of output produced. It is also referred to as indirect factory cost.

Fundamentals

Overhead rate: Overhead rate is a rate arrived at by dividing the overhead cost by any suitable measure.

Machine hour rate: Machine hour rate is the overhead rate which is arrived at by dividing total overhead cost by total machine hours. These overhead cost can be actual overhead cost or budgeted overhead cost. However, both the numerator and denominator should either be actuals or budgeted.

Ans:

The company’s plantwide overhead rate is $38.60 per machine hour.