The budgeted cost of maintenance for a production department is $250 000. The organisation has decided to use machine hours as the cost driver for allocating indirect costs. The budgeted amount of machine hours for the production department is 125 000 machine hours. Therefore the indirect cost rate is calculated as $250 000/125 000 = $2 per machine hour.

Question

Quizplus · Accepted Answer

The indirect cost rate is correctly calculated by dividing the total budgeted cost of maintenance ($250,000) by the total budgeted machine hours (125,000), resulting in $2 per machine hour.

The Budgeted Cost of Maintenance for a Production Department Is