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9 July, 07:50

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?

a. $25.00.

b. $63.00.

c. Some other amount.

d. $15.00.

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Answers (1)
  1. 9 July, 08:08
    0
    d. $15.00

    Explanation:

    Overhead application rate is the rate at which manufacturing overheads are applied to a product / project / department. It is calculated by dividing the Budgeted overhead by the budgeted level of activity on which the overhead is applied.

    Overhead application rate = Budgeted overhead / Budgeted activity

    Overhead application rate = Budgeted overhead / Budgeted machine hours

    Overhead application rate = $5,000,000 / 200,000 labor hours

    Overhead application rate = $25 per labor hour

    Assigned Overhead = Overhead application rate x Number of machine hours consumed = $25 x 0.6 = $15
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