Western Company allocates $10 overhead to products based on the number of machine hours used. 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 $270,000 $170,000
Direct labor hours 10,000 DLH 32,000 DLH
Machine hours 17,000 MH MH

a. 98,000 MH
b. 151,700 MH
c. 27,000 MH
d. 90,700 MH
e. 37,000 MH

The correct answer is C.

Explanation:

Giving the following information:

Western Company allocates $10 overhead to products based on the number of machine hours used.

Estimated: Department 1 Department 2

Manufacturing overhead costs $270,000 $170,000

Machine hours 17,000 MH MH

To calculate the number of machine-hours for Department 2, we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

10= 440,000/(17,000 + MH)

10*(17,000 + MH)= 440,000

170,000 + 10MH = 440,000

10MH = 270,000

Machine hours dept 2= 270,000/10= 27,000