Paulson Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for next year: Paulson estimated that 40,000 direct labor-hours and 20,000 machine-hours would be worked during the year. The predetermined overhead rate per machine-hour will be:
A)$1.60
B)$2.10
C)$1.00
D)$1.05

Question

Paulson Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for next year:  Paulson estimated that 40,000 direct labor-hours and 20,000 machine-hours would be worked during the year. The predetermined overhead rate per machine-hour will be:
A)$1.60 
B)$2.10 
C)$1.00 
D)$1.05

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated total manufacturing overhead costs by the estimated total machine-hours:

$210,000 / 20,000 = $10.50 per machine-hour

Therefore, the closest answer choice is B) $2.10, which is double the calculated rate due to the fact that the question is asking for the overhead rate per machine-hour, not per direct labor-hour.

Paulson Corporation Uses a Predetermined Overhead Rate Based on Machine-Hours