Lake Erie Company uses a plantwide overhead rate with machine hours as the allocation base. Next year, 700,000 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 $3,141,500 $1,571,000
Direct labor hours 167,000 DLH 267,000 DLH
Machine hours 267,000 MH 192,000 MH

a. $10.86 per unit
b. $8.73 per unit
c. $4.22 per unit
d. $11.77 per unit
e. $10 per unit

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andromache andromache · Answer 1 · 2020-07-07T02:26:35+02:00

Answer:

$7.70 per unit

Explanation:

For computing the overhead rate per unit we first need to compute the estimated amount which is as follows

Total manufacturing cost

= Department 1 + department 2

= $31,41,500.00 + $15,71,000.00

= $47,12,500.00

Total machine hours

= Department 1 + department 2

= 267,000 MH + 192,000 MH

= 459000 MH

Now predetermined overhead rate is

= Total manufacturing cost ÷ Total machine hours

= $4,712,500 ÷ 459,000 MHs

= $10.27 per MH

Now overhead per unit is

= Pre-determined overhead rate per MH × Machine Hours required per unit

= $10.27 per MH × 0.75 MHs per unit

= $7.70 per unit

This is the answer but the same is not provided in the given options