Malena is working on budgeting for the next fiscal year. The company recently upgraded their equipment purchases to increase capacity. The new equipment, with the current workforce can produce 225 units per hour, working 365 days per year. The operations currently run 24 hours a day. Malena estimates a more realistic goal is 210 units per hour. She also believes the company will be closed 15 days during the year for maintenance and holidays. She is also accounting for setups and inspection of 3 hours per day that will temporarily stop production. The current system produces 1,300,000 units per year and is tied to demand. If the budgeted fixed MOH costs are $2,100,000 for the upcoming year, what would be the fixed MOH rate using the theoretical capacity?
A)$1.07.
B)$1.19.
C)$1.36.
D)$1.62.

Question

Quizplus · Accepted Answer

225 x 365 x 24 = 1,971,000 units
$2,100,000 ÷ 1,971,000 = $1.07 per unit.
Units per hour x 365 x 24 = budgeted units produced
Budgeted fixed MOH ÷ budgeted units produced = budgeted fixed MOH rate per unit.

Malena Is Working on Budgeting for the Next Fiscal Year