Wilder Corporation wishes to develop a single predetermined overhead rate.The company's expected annual fixed overhead is $340,000 and its variable overhead cost per machine hour is $2.The company's relevant range is from 200,000 to 600,000 machine hours.Walton expects to operate at 425,000 machine hours for the coming year.The plant's theoretical capacity is 850,000.The predetermined overhead rate per machine hour should be
A)$2.40.
B)$2.57.
C)$2.80.
D)$2.85.

Question

Quizplus · Accepted Answer

The predetermined overhead rate can be calculated using the following formula:
Predetermined overhead rate = (Expected annual fixed overhead + Expected annual variable overhead) / Expected annual machine hours
Expected annual variable overhead = Variable overhead cost per machine hour x Expected annual machine hours
Expected annual fixed overhead = $340,000
Variable overhead cost per machine hour = $2
Expected annual machine hours = 425,000
Expected annual variable overhead = $2 x 425,000 = $850,000
Predetermined overhead rate = ($340,000 + $850,000) / 425,000 = $2.80 per machine hour. Therefore, choice C is the best option.

Wilder Corporation Wishes to Develop a Single Predetermined Overhead Rate