Question

Anton believes his company's overhead costs are driven (affected) by the number of machine hours because the production process is heavily automated. During the period, the company produced 3,000 units of Product A requiring a total of 100 machine hours and 2,000 units of Product B requiring a total of 25 machine hours. What allocation rate should be used if the company incurs overhead costs of $10,000?
(A) $2 per unit
(B) $2 per machine hour
(C) $80 per unit
(D) $80 per machine hour

Answer 1

Answer:

overhead rate = $80 per machine hour

so correct option is (D) $80 per machine hour

Explanation:

given data

Product A produced = 3,000 units

Product A requiring total = 100 machine hours

Product B produced = 2,000 units

Product B requiring total = 25 machine hours

overhead costs = $10,000

to find out

allocation rate

solution

first we get here total machine hours required that is express as

total machine hours required = 100 hours + 25 hours

total machine hours required = 125 hours

and total overhead cost is = $10000

so here production system heavily automate

so that overhead allocation rate is base on machine hour

and overhead allocation rate will be as

overhead rate = $\frac{10000}{125}$

overhead rate = $80 per machine hour

so correct option is (D) $80 per machine hour