Lake Erie Company uses a plantwide overhead rate with machine hours as the allocation base. Next year, 770,000 units are expected to be produced taking 0.85 machine hours each. How much overhead will be assigned to each unit produced given the following estimated amounts?

Estimated: Department 1 Department 2

Manufacturing overhead costs $3,141,500 $1,571,000

Direct labor hours 167,000 DLH 267,000 DLH

Machine hours 267,000 MH 192,000 MH

a) $10.86 per unit

b) $8.73 per unit

c) $4.22 per unit

d) $11.77 per unit

e) $10 per unit

The correct answer is B.

Explanation:

Giving the following information:

Units = 770,000

Standard machine hours = 0.85 per unit

Estimated: Department 1 Department 2

Manufacturing overhead costs $3,141,500 $1,571,000

Machine hours 267,000 MH 192,000 MH

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

Predetermined manufacturing overhead rate = (3,141,500 + 1,571,000) / (267,000 + 192,000)

Predetermined manufacturing overhead rate = 4,712,500 / 459,000

Predetermined manufacturing overhead rate = $10.27 per machine hour

Now, we can calculate the allocated overhead per unit:

Allocated overhead per unit = 10.27*0.85 = $8.73