A company estimates that costs for the next year will be $500,000 for indirect labor,$50,000 for factory utilities,and $1,000,000 for the CEO's salary.The company uses machine hours as its overhead allocation base.If 25,000 machine hours are planned for this next year,then the plantwide overhead rate is $22 per machine hour.

Question

Quizplus · Accepted Answer

The calculation for plantwide overhead rate is as follows:
(Total estimated overhead costs) / (Total estimated machine hours) = Plantwide overhead rate
($500,000 + $50,000 + $1,000,000) / 25,000 = $1,550,000 / 25,000 = $62 per machine hour
Therefore, the statement in the question is false.

A Company Estimates That Costs for the Next Year Will