Question

Lake Erie Company uses a plantwide overhead rate with machine hours as the allocation base. Next year, 780,000 units are expected to be produced taking 0.75 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	$	3,143,500			$	1,574,000
Direct labor hours		168,000	DLH			268,000	DLH
Machine hours		268,000	MH			193,000	MH

• $10.82 per unit

• $10.23 per unit

• $5.23 per unit

• $11.73 per unit

• $7.67 per unit

Answer 1

The correct answer is $7.67 per unit

Supporting Explanations:

Total Manufacturing Overhead = $3,143,500 + $1,574,000

= $4,717,500

Total Machine Hours = 268,000 + $193,000

= 461,000

Manufacturing overhead per machine hour = $4,717,500/461,000

= $10.23 per machine hour

Overhead assigned to each unit = Machine Hour Per Unit * Manufacturing overhead per machine hour

= 0.75 machine hour per unit * $10.23 per machine hour

= $7.67 per unit.