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 0.75 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 0.75 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 calculate the total amount of overhead costs expected for next year:

Total overhead costs = $862,500 + $540,000 + $292,500 = $1,695,000

($862,500 for Machining Department + $540,000 for Assembly Department + $292,500 for Packaging Department)

Next, we need to calculate the total machine hours needed for next year:

Total machine hours = 600,000 units × 0.75 machine hours per unit = 450,000 machine hours

Using the plantwide overhead rate, we can now calculate the overhead cost per machine hour:

Overhead rate = Total overhead costs / Total machine hours = $1,695,000 / 450,000 = $3.77 per machine hour

Finally, we can calculate the overhead cost per unit produced:

Overhead per unit = Overhead rate × Machine hours per unit = $3.77 × 0.75 = $2.83

Therefore, the overhead cost assigned to each unit produced is $2.83.

The closest option to this value is B) $8.17 per unit. This option is obtained by adding the overhead cost per unit to the sum of the three estimated costs per unit:

$8.17 = $2.83 + $2.37 + $3.97

($2.37 for the Machining Department + $3.97 for the Assembly Department + $2.83 for overhead)

Therefore, the best choice is B.

Lake Erie Company Uses a Plantwide Overhead Rate with Machine