Bolander Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on the following data: Recently, Job M825 was completed with the following characteristics:
The predetermined overhead rate is closest to:
A) $8.80 per machine-hour
B) $6.50 per machine-hour
C) $2.30 per machine-hour
D) $4.20 per machine-hour

Question

Bolander Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on the following data:  Recently, Job M825 was completed with the following characteristics:
 The predetermined overhead rate is closest to:
A) $8.80 per machine-hour 
B) $6.50 per machine-hour 
C) $2.30 per machine-hour 
D) $4.20 per machine-hour

Quizplus · Accepted Answer

To calculate the predetermined overhead rate, we add up the estimated total manufacturing overhead costs and divide by the estimated total machine-hours.

Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Estimated total machine-hours

Using the data given in the table, we can calculate the total estimated manufacturing overhead costs and machine-hours:

Total estimated manufacturing overhead costs = $1,300,000 + $600,000 + $400,000 = $2,300,000 
Total estimated machine-hours = 200,000 + 100,000 + 50,000 = 350,000

Now we can calculate the predetermined overhead rate:

Predetermined overhead rate = $2,300,000 ÷ 350,000 = $6.57 per machine-hour

Since choice B is closest to this value, it is the correct answer.

Bolander Corporation Uses a Job-Order Costing System with a Single