Reamer Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for next year: Direct materials $ 1,000 Direct labor $ 3,000 Sales commissions $ 4,000 Salary of production supervisor $ 2,000 Indirect materials $ 400 Advertising expense $ 800 Rent on factory equipment $ 1,000 Reamer estimates that 500 direct labor-hours and 1,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be:

$3.40 per machine-hour

Explanation:

Calculation for what The predetermined overhead rate per hour will be:

First step is to calculate the Total estimated manufacturing overhead

Manufacturing overhead:

Salary of production supervisor $2,000

Indirect materials $400

Rent on factory equipment$1,000

Total estimated manufacturing overhead $3,400

Now let calculate the Predetermined overhead rate using this formula

Predetermined overhead rate=Total estimated manufacturing overhead/Estimated machine-hours

Let plug in the formula

Predetermined overhead rate=$3,400/1,000

Predetermined overhead rate=$3.40 per machine-hour

Therefore The predetermined overhead rate per hour will be:$3.40 per machine-hour

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