Bolander Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on the following data: Recently, Job M825 was completed with the following characteristics:
The predetermined overhead rate is closest to:

A) $8.80 per machine-hour
B) $6.50 per machine-hour
C) $2.30 per machine-hour
D) $4.20 per machine-hour

Question

Bolander Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on the following data:

Recently, Job M825 was completed with the following characteristics:

The predetermined overhead rate is closest to:

A) $8.80 per machine-hour
B) $6.50 per machine-hour
C) $2.30 per machine-hour
D) $4.20 per machine-hour

Fredrick Muchiri (Student) · Accepted Answer

Final Answer : B, Explanation :  To calculate the predetermined overhead rate, we add up the estimated total manufacturing overhead costs and divide by the estimated total machine-hours.Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Estimated total machine-hoursUsing the data given in the table, we can calculate the total estimated manufacturing overhead costs and machine-hours:Total estimated manufacturing overhead costs = $1,300,000 + $600,000 + $400,000 = $2,300,000Total estimated machine-hours = 200,000 + 100,000 + 50,000 = 350,000Now we can calculate the predetermined overhead rate:Predetermined overhead rate = $2,300,000 ÷ 350,000 = $6.57 per machine-hourSince choice B is closest to this value, it is the correct answer.

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