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A company estimates that overhead costs for the next year will be $8,268,000 for indirect labor and $161,600 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? (Round to two decimal places)
A. $21.07 per machine hour.
B. $26.07 per machine hour.
C. $.40 per machine hour.
D. $20.67 per machine hour.
E. $20.75 per machine hour

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Answer:

The correct answer is A.

Explanation:

Giving the following information:

A company estimates that overhead costs for the next year will be $8,268,000 for indirect labor and $161,600 for factory utilities. The company uses machine hours as its overhead allocation base. 400,000 machine hours are planned for this next year.

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= (8,268,000 + 161,600)/400,000= $21.07 per machine hour.

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