A company uses the departmental overhead rate method. Total overhead costs are $5,000,000. Of this total, the machining department is assigned overhead costs of $4,000,000 and the assembly department is allocated the remainder. The machining department uses machine hours as their allocation base and has 80,000 machine hours. The assembly department uses direct labor hours as their allocation base and has 50,000 direct labor hours. Calculate the overhead rate for the machining department.

The machining department uses machine hours as its allocation base and has 80,000 machine hours. The machining department is assigned overhead costs of $4,000,000.

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base= 4000000/80000= $50 per machine hour

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dubeyshailja64 dubeyshailja64 · Answer 2 · 2022-02-24T13:21:12+01:00

The overhead rate for machining department is $50 per machine hours.

What are overheads?

The overhead expenses refer to the expenses that are incurred for running a business. They are difficult to be traced or allocated for a particular activities since they are incurred on the business as a whole.

The different methods to allocate overheads include departmental overhead rate method, rate to direct cost method, and so on.

The allocation of overhead is generally based on a specific unit rate. When allocation is based on machine hours, the rate of overhead can be calculated as:

[tex]\rm Rate= \dfrac{Total\:overhead}{Total\:hours}[/tex]

Given:

The total overheads allocated on machining department is $4,000,000

Total machine hours of machining department are 80,000 hours

Overhead rate of machining department will be:

[tex]\rm Rate= \dfrac{\$4,000,000}{80,000}\\\\\rm Rate= \$50[/tex]

Therefore the rate is $50 per machine hour.

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