West Company estimates that overhead costs for the next year will be $5,240,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 150,000 machine hours are planned for this next year, what is the company's plantwide overhead rate?
A) $.0259 per machine hour.
B) $34.93 per machine hour.
C) $38.60 per machine hour.
D) $3.67 per machine hour.
E) $.2727 per machine hour.

Question

Quizplus · Accepted Answer

The plantwide overhead rate is calculated by dividing the total estimated overhead costs by the total estimated machine hours.

Total estimated overhead costs = $5,240,000 + $550,000 = $5,790,000
Total estimated machine hours = 150,000

Plantwide overhead rate = $5,790,000/150,000 = $38.60 per machine hour.

West Company Estimates That Overhead Costs for the Next Year