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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 cost44,50044,50023,000Applied overhead55,00055,00051,750What is the overhead application rate per machine hour for Processing?

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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:

  1. Identify the applied overhead for Processing, which is $55,000.
  2. Identify the number of machine hours for Processing, which is 2,500.
  3. Divide the applied overhead by the number of machine hours.

So, the calculation would be:

55,000(AppliedOverhead)÷2,500(MachineHours)=55,000 (Applied Overhead) ÷ 2,500 (Machine Hours) = 22

Therefore, the overhead application rate per machine hour for Processing is $22.

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