Paulson Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs.The Corporation has provided the following estimated costs for next year: Paulson estimated that 40,000 direct labor-hours and 20,000 machine-hours would be worked during the year.The predetermined overhead rate per machine-hour will be:
A)$1.60
B)$2.10
C)$1.00
D)$1.05

Question

Paulson Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs.The Corporation has provided the following estimated costs for next year:  Paulson estimated that 40,000 direct labor-hours and 20,000 machine-hours would be worked during the year.The predetermined overhead rate per machine-hour will be:
A)$1.60 
B)$2.10 
C)$1.00 
D)$1.05

Quizplus · Accepted Answer

To calculate the predetermined overhead rate per machine-hour, we need to divide the total estimated manufacturing overhead costs by the estimated total machine-hours.
Predetermined overhead rate per machine-hour = Total estimated manufacturing overhead costs / Estimated total machine-hours
= ($210,000 + $135,000 + $45,000) / 20,000 machine-hours
= $390,000 / 20,000 machine-hours
= $19.50 per machine-hour
Therefore, the answer is B, since $19.50 per machine-hour is closest to $2.10 per machine-hour.

Paulson Corporation Uses a Predetermined Overhead Rate Based on Machine-Hours