Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis of standard machine-hours. For June, the company's manufacturing overhead flexible budget showed the following total budgeted costs at a denominator activity level of 20,000 machine-hours: During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following actual total overhead costs were incurred: At standard, each unit of finished product requires 1.4 hours of machine time. The total predetermined overhead rate per machine-hour for June was:
A)$2.57 per machine-hour
B)$1.30 per machine-hour
C)$2.80 per machine-hour
D)$3.15 per machine-hour

Question

Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis of standard machine-hours. For June, the company's manufacturing overhead flexible budget showed the following total budgeted costs at a denominator activity level of 20,000 machine-hours:  During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following actual total overhead costs were incurred:  At standard, each unit of finished product requires 1.4 hours of machine time. The total predetermined overhead rate per machine-hour for June was:
A)$2.57 per machine-hour 
B)$1.30 per machine-hour 
C)$2.80 per machine-hour 
D)$3.15 per machine-hour

Quizplus · Accepted Answer

To calculate the predetermined overhead rate, we divide the total budgeted overhead costs by the denominator activity level.

Predetermined overhead rate = Total budgeted overhead costs / Denominator activity level

Using the figures provided in the question, we get:

Predetermined overhead rate = $56,000 / 20,000 machine-hours

Predetermined overhead rate = $2.80 per machine-hour

Therefore, the correct answer is C, $2.80 per machine-hour.

Pohl Corporation Uses a Standard Cost System in Which Manufacturing