Question

Webt Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the most recently completed year appear below:

Estimates made at the beginning of the year:
Estimated machine-hours		37,800
Estimated variable manufacturing overhead	$	5.91	per machine-hour
Estimated total fixed manufacturing overhead	$	795,690
Actual machine-hours for the year		34,000

The predetermined overhead rate for the recently completed year was closest to:

Multiple Choice

a. $21.05 per machine-hour

b $26.96 per machine-hour

c. $5.91 per machine-hour

d. $26.37 per machine-hour

Answer 1

Sol:i

Formula for calculating Predetermined overhead rate with rerence to machine hours is

Total Factory Overheads / Total Machine hours

Estimated machine hours is 37,800

Estimated variable manufacuring overhead per hour is $5.91

Thus total estimated variable maniufacturing overhead for 37,800 machine hours is = 37,800 x 5.91 = $223,398--A

Estimated fixed manufacuring overhead is $795,690---B

Total estimated manufacting overhead = A + B = $223,398 + $795,690 = $1,019,088

Predertmined overhead rate = 1,019,088 / 37800 = $26.96 per machine hour. Therefore option b is correct

Options a, c and d are incorrect as the rate per hour given is not even close to the exact overhead rate.

Actual machine hours of 34,000 is irrelevant because predetermined overhead rate is based on estimations rather than actual costs.