Peterson Company estimates that overhead costs for the next year will be $6,520,000 for indirect labor and $550,000 for factory utilities.The company uses machine hours as its overhead allocation base.If 140,000 machine hours are planned for this next year,what is the company's plantwide overhead rate? (Round your answer to two decimal places.)
A)$0.02 per machine hour.
B)$50.50 per machine hour.
C)$45.75 per machine hour.
D)$3.93 per machine hour.
E)$0.25 per machine hour.

Question

Quizplus · Accepted Answer

The plantwide overhead rate is calculated by dividing the total estimated overhead costs by the total estimated base activity. Here, the total overhead costs are $6,520,000 (indirect labor) + $550,000 (factory utilities) = $7,070,000. The total base activity is 140,000 machine hours. Therefore, the plantwide overhead rate = $7,070,000 / 140,000 machine hours = $50.50 per machine hour.

Peterson Company Estimates That Overhead Costs for the Next Year