Western Company allocates $10.00 overhead to each unit produced. The company uses a plantwide overhead rate with machine hours as the allocation base. Given the amounts below, how many machine hours does the company expect in department 2?

Estimated: Department 1 Department 2

Manufacturing overhead costs $250,000 $150,000

Direct labor hours 8,000 DLH 12,000 DLH

Machine hours 15,000 MH? MH

a. 33,000 MH

b. 137,500 MH

c. 82,500 MH

d. 25,000 MH

The correct answer is D.

Explanation:

Giving the following information:

Western Company allocates $10.00 overhead to each unit produced. The company uses a plantwide overhead rate with machine hours as the allocation base.

Estimated: Department 1 Department 2

Manufacturing overhead costs $250,000 $150,000

Machine hours 15,000 MH?

We will sum the total overhead and divide it by the overhead rate. Doing this we will determine the total number of machine-hours.

Total machine-hours = 400,000/10 = 40,000 hours

Department 2 = total machine hours - department 1 machine hours

D2 = 40,000 - 15,000 = 25,000 machine hours