The overhead costs that Lucca Industries, Inc., used to compute its overhead rat

Question

The overhead costs that Lucca Industries, Inc., used to compute its overhead rate for the past year are as follows:

Indirect materials $79,200
Maintenance 14,900
Outside service contract 17,300
Indirect labor 79,100
Factory supervison 42,900
Depreciation 85,000
Factory Insurance 8,200
Property taxes 6,500
Heat, Light, power 7,700
Miscellaneous 5,760
Total Overhead $346,560

The allocation base for the past year was 45,600 total machine hours. For the next year, all overhead costs except depreciation, property taxes, and miscellaneous overhead are expected to increase by 10 percent. Depreciation should increase by 12 percent, and property taxes and miscellaneous overhead are expected to increase by 20 percent. Plant capacity in terms of machine hours used will increase by 4,400 hours. Compute the overhead rate for next year.

Explanation / Answer

Budgeted overhead rate=

= $346,560 /$45,600= $7.60 per machine hour

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