If overhead is applied on the basis of machine hours, what will be the overhead rate per hour?

Simplex Company has the following estimated costs for next year:

Direct materials
Direct labour
Sales commissions
Salary of production supervisor
Indirect materials
Advertising expense
Rent

Simplex estimates that 10,000 direct labour and 16,000 machine hours will be worked during the year. If overhead is applied on the basis of machine hours, what will be the overhead rate per hour?

Expert Solution

Calculation of Estimated Manufacturing overhead

Estimated Manufacturing overhead = Salary of production supervisor + Indirect materials + Rent on factory equipment

=$35,000 + $5,000 + $16,000

=$56,000

Calculation of Predetermined overhead rate

Predetermined overhead rate = Estimated manufacturing overhead / Estimated machine hours

=$56,000 / $16,000

=$3.50 machine per hour

Predetermined overhead rate = $3.50 machine per hour

balaji rao answered 3 years ago

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