ABC Company has two departments (Processing and Packaging) and uses a job-order costing system. ABC applies overhead in Processing based on machine hours and on direct labor cost in Packaging. The following information is available for July: ProcessingPackagingMachine hours 2,500 1,000Direct labor cost$44,500$23,000Applied overhead$55,000$51,750What is the overhead application rate per machine hour for Processing?
Question
ABC Company has two departments (Processing and Packaging) and uses a job-order costing system. ABC applies overhead in Processing based on machine hours and on direct labor cost in Packaging. The following information is available for July: ProcessingPackagingMachine hours 2,500 1,000Direct labor cost23,000Applied overhead51,750What is the overhead application rate per machine hour for Processing?
Solution
To calculate the overhead application rate per machine hour for Processing, you need to divide the applied overhead by the number of machine hours.
Here are the steps:
- Identify the applied overhead for Processing, which is $55,000.
- Identify the number of machine hours for Processing, which is 2,500.
- Divide the applied overhead by the number of machine hours.
So, the calculation would be:
22
Therefore, the overhead application rate per machine hour for Processing is $22.
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