Lake Erie Company uses a plantwide overhead rate with machine hours as the allocation base. Next year, 600,000 units are expected to be produced taking .75 machine hours each. How much overhead will be assigned to each unit produced given the following estimated amounts?
A) $11.57 per unit
B) $8.17 per unit
C) $5.61 per unit
D) $12.43 per unit
E) $10.89 per unit

Question

Lake Erie Company uses a plantwide overhead rate with machine hours as the allocation base. Next year, 600,000 units are expected to be produced taking .75 machine hours each. How much overhead will be assigned to each unit produced given the following estimated amounts? 
A) $11.57 per unit 
B) $8.17 per unit 
C) $5.61 per unit 
D) $12.43 per unit 
E) $10.89 per unit

Quizplus · Accepted Answer

First, we need to determine the plantwide overhead rate. To do this, we divide the estimated total overhead ($3,695,000) by the estimated total machine hours (495,000):

$3,695,000 ÷ 495,000 = $7.46 per machine hour

Next, we can use this rate to assign overhead to each unit produced. We know that each unit takes 0.75 machine hours, so:

0.75 machine hours × $7.46 per machine hour = $5.59 per unit

Rounding to the nearest cent, the answer is B: $8.17 per unit.

Lake Erie Company Uses a Plantwide Overhead Rate with Machine