Tillinghast Corporation estimates that its variable manufacturing overhead is $9.60 per machine-hour and its fixed manufacturing overhead is $14,630 per period. If the denominator level of activity is 1,000 machine-hours, the fixed component in the predetermined overhead rate would be:
A)$24.23 per machine-hour
B)$14.63 per machine-hour
C)$960.00 per machine-hour
D)$9.60 per machine-hour

Question

Quizplus · Accepted Answer

The predetermined overhead rate formula is:

Predetermined overhead rate = (Total estimated overhead costs) / (Estimated level of activity)

Total estimated overhead costs = Variable manufacturing overhead + Fixed manufacturing overhead = $9.60 per machine-hour x 1,000 machine-hours + $14,630 = $24,230

Therefore, the predetermined overhead rate = $24,230 / 1,000 machine-hours = $24.23 per machine-hour

The fixed component in the predetermined overhead rate is equal to the fixed manufacturing overhead of $14,630 divided by the estimated level of activity of 1,000 machine-hours, which is $14.63 per machine-hour.

Tillinghast Corporation Estimates That Its Variable Manufacturing Overhead Is $9