Hibshman Corporation bases its predetermined overhead rate on the estimated mach

Question

Hibshman Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the machine-hours for the upcoming year at 10,000 machine-hours. The estimated variable manufacturing overhead was $10.97 per machine-hour and the estimated total fixed manufacturing overhead was $293,200. The predetermined overhead rate for the recently completed year was closest to:

a. $40.29 per machine-hour

b. $29.45 per machine-hour

c. $29.32 per machine-hour

d. $10.97 per machine-hour

Explanation / Answer

a. $40.29 per machine-hour

Estimated total manufacturing overhead = $293,200 + ($10.97 per machine-hour × 10,000 machine-hours) = $402,900

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $402,900 ÷ 10,000 machine-hours = $40.29 per machine-hour

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