Question

Miller Company expected to incur $ 15,000 in manufacturing overhead costs and use 6,000 machine hours for the year. Actual manufacturing overhead was $ 9,800 and the company used 6,300 machine hours.
a. Calculate the predetermined overhead allocation rate using machine hours as the allocation base.

Answer 1

Answer:

The predetermined overhead allocation rate is $2.5 per machine hour

Explanation:

Predetermined overhead allocation rate is calculated by dividing the Expected overhead by the Expected level of activity on which the overhead is allocated. It is a rate at which the overhead is allocated to a product / project/ department.

Predetermined overhead allocation rate = Expected overhead / Expected activity

Predetermined overhead allocation rate = Expected overhead / Expected machine hours

Predetermined overhead allocation rate = $15,000 / 6,000 machine hours

Predetermined overhead allocation rate = $2.5 per machine hour.