Michael & Co. expects overhead costs of $60,000 per month and direct production costs of $24 per unit. The estimated production activity for the current accounting period is as follows: The predetermined overhead rate based on units produced is: (rounded to the nearest penny.)
A) $1.50 per unit.
B) $2.67 per unit.
C) $18.00 per unit.
D) $42.00 per unit.

Question

Michael & Co. expects overhead costs of $60,000 per month and direct production costs of $24 per unit. The estimated production activity for the current accounting period is as follows:  The predetermined overhead rate based on units produced is: (rounded to the nearest penny.)
A) $1.50 per unit. 
B) $2.67 per unit. 
C) $18.00 per unit. 
D) $42.00 per unit.

Quizplus · Accepted Answer

Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base)
Allocation rate = ($60,000 × 12 months) ÷ (11,500 units + 9,000 units + 8,250 units + 11,250 units) = $18.00 per unit