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A company expected its annual overhead costs to be $750,000 and machine hours to equal 100,000 hours. Actual overhead was $745,000, and actual machine hours totalled 97,000 hours.

-How much is the company's predetermined overhead rate to the nearest cent, assuming overhead is applied based on machine hours?

Question

Use the following information to answer questions

A company expected its annual overhead costs to be $750,000 and machine hours to equal 100,000 hours. Actual overhead was $745,000, and actual machine hours totalled 97,000 hours.

-How much is the company's predetermined overhead rate to the nearest cent, assuming overhead is applied based on machine hours?

Quizplus · Accepted Answer

To calculate the predetermined overhead rate, we need to divide the estimated total overhead costs by the estimated total machine hours.

Predetermined overhead rate = Estimated total overhead costs / Estimated total machine hours

= ($300,000 + $50,000 + $20,000) / 40,000

= $370,000 / 40,000

= $9.25

Rounding this to the nearest cent gives us answer choice B, $7.50.

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