Riverview Company\'s budget for the coming year includes $5,000,000 for manufact

Question

Riverview Company's budget for the coming year includes $5,000,000 for manufacturing overhead, 20,000 hours of direct labor, and 200,000 hours of machine time.

If Riverview applies overhead using a predetermined rate based on machine-hours, what amount of overhead will be assigned to a unit of output which requires 0.6 machine hours and 0.25 labor hours to complete?

$25.00.

$63.00.

Some other amount.

$15.00.

If Riverview applies overhead using a predetermined rate based on machine-hours, what amount of overhead will be assigned to a unit of output which requires 0.6 machine hours and 0.25 labor hours to complete?

Explanation / Answer

Predetermined overhead rate = Budgeted manufacturing overhead / budgeted machine hours

                                                                = 5,000,000 / 200,000

                                                                = 25

Overhead for 0.60 machine hour = machine hours x overhead rate

                                                                = 0.60 x 25

                                                                = 15

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