Aaron, Inc. estimates direct labor costs and manufacturing overhead costs for the coming year to be $ 770 comma 000 and $ 550 comma 000, respectively. Aaron allocates overhead costs based on machine hours. The estimated total labor hours and machine hours for the coming year are 20 comma 000 hours and 5 comma 000 hours, respectively. What is the predetermined overhead allocation rate? (Round your answer to the nearest cent.)
Estimated manufacturing overhead rate= $110 per machine hour
Giving the following information:
Estimated manufacturing overhead costs= $550,000.
Aaron allocates overhead costs based on machine hours.
The estimated total machine hours= 5,000 hours
To calculate the estimated manufacturing overhead rate we need to use the following formula:
Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Estimated manufacturing overhead rate= 550,000/5,000= $110 per machine hour
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