The management of Plitt Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 69,000 machine-hours. Capacity is 82,000 machine-hours and the actual level of activity for the year is assumed to be 72,400 machine-hours. All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $4,130,340 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 470 machine-hours.If the company bases its predetermined overhead rate on capacity, then the predetermined overhead rate is closest to:

A) $57.05 per machine-hour
B) $59.86 per machine-hour
C) $50.37 per machine-hour
D) $60.83 per machine-hour

Question

Kalena Hughes · Accepted Answer

Final Answer : C, Explanation :  The predetermined overhead rate based on capacity is calculated by dividing the total estimated manufacturing overhead costs by the capacity in machine-hours. Here, it is $4,130,340 / 82,000 machine-hours = $50.37 per machine-hour.

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