Huffington Company uses a plantwide overhead rate to apply overhead. The predetermined overhead rate is based on machine hours. At the beginning of the year, the company made the following estimates:

 Huffington Company uses a plantwide overhead rate to apply overhead. The predetermined overhead rate is based on machine hours. At the beginning of the year, the company made the following estimates: direct labor hours of 16,000, direct labor cost of $200,000, machine hours of 5,000, and total overhead costs of $25,000. On a per machine hour basis, the company's plantwide overhead rate is:
 
multiple choice

    $8.
    $50.
    $5. Correct
    $100.

Answer

$5

 
Explanation

Knowledge Check 01
 
Plantwide overhead rate = Total budgeted (or estimated) overhead cost ÷ Budgeted machine hours
Plantwide overhead rate = $25,000 ÷ 5,000 machine hours = $5.00 per machine hour.

Benson, Incorporated manufactures a single product and uses the plantwide overhead rate method. The company's plantwide overhead rate is $25 per machine-hour (MH) used. Their single product uses 10,000 MH, has direct material cost per unit of $10.96 and direct labor cost of $3.84 per unit. The total overhead cost is expected to be:
 
multiple choice

    $250,000 Correct
    $109,600
    $38,400
    $398,000

Answer

250,000

Explanation

Knowledge Check 01
 
Overhead applied = Plantwide overhead rate × Actual MH
Overhead applied = $25.00 per MH × 10,000 MH = $250,000.