Landon Corporation wishes to develop a single predetermined overhead rate.The company's expected annual fixed overhead is $340,000 and its variable overhead cost per machine hour is $2.The company's relevant range is from 200,000 to 600,000 machine hours.Landon expects to operate at 425,000 machine hours for the coming year.The plant's theoretical capacity is 850,000.The predetermined overhead rate per machine hour should be
A)$2.40.
B)$2.57.
C)$2.80.
D)$2.85.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the total expected overhead costs by the expected machine hours. Total overhead costs = Fixed overhead + (Variable overhead per machine hour * Expected machine hours) = $340,000 + ($2 * 425,000) = $1,190,000. The rate is $1,190,000 / 425,000 = $2.80 per machine hour.

Landon Corporation Wishes to Develop a Single Predetermined Overhead Rate