Thomas Company uses a predetermined overhead rate of $32 per machine hour. Estim
ID: 2576758 • Letter: T
Question
Thomas Company uses a predetermined overhead rate of $32 per machine hour. Estimated machine hours at the beginning of the year were 14,000 and actual machine hours at the end of the year were 14,200. Estimated total manufacturing overhead costs at the beginning of the year are $448,000 and actual total manufacturing overhead costs at the end of the year are $456,000. What is the amount of manufacturing overhead that would have been applied to all jobs during the year?
$454,400
$449,577
$448,000
$456,000
$454,400
$449,577
$448,000
$456,000
Explanation / Answer
Solution:
Predetermined Overhead Rate
- Predetermined Overhead Rate is the rate which is used to apply manufacturing overhead to products or job orders.
- Normally, it is calculated at the beginning of the period by using the estimated allocation base.
- It is calculated by dividing the estimated factory overhead cost by an allocation base (or suitable basis) at the beginning of the period.
- Allocation bases may be direct labor hours, direct labor costs, machine hours etc..
Predetermined Overhead Rate = Estimated Manufacturing Overhead Cost / Estimated Allocation Base
Plant-wide overhead rate means predetermined overhead rate of plant as a whole.
Predetermined Overhead Rate is given = $32 per machine hour
Manufacturing Overhead is applied on the basis of actual activity or allocation base performed during the period by multiplying the predetermined overhead rate.
Hence, the amount of manufacturing overhead that would have been applied to all jobs during the year = Actual Machine Hours at the end of the year 14,200 MHs x $32 Predetermined overhead rate
= $454,400
Hence, the correct option is $454,400
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