Dearden Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $144,000, variable manufacturing overhead of $2.00 per machine-hour, and 60,000 machine-hours. The predetermined overhead rate is closest to:
a) $6.40 per machine-hour
b) $4.40 per machine-hour
c) $2.40 per machine-hour
d) $2.00 per machine-hour

c) $2.40 per machine-hour

Explanation:

The manufacturing overhead cost is made up of both a fixed and a variable elements.

The total manufactured overhead cost is usually  a function of a direct cost such as direct machine hours , direct labour hours, direct raw material cost per unit etc.

Given that  total fixed manufacturing overhead cost is $144,000 and there are 60,000 machine-hours

The predetermined overhead rate is closest to

= $144,000/60,000

= $2.40 per machine hour

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