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