Baltimore Automotive Corp. has provides the following information for the year: Budgeted production for the year 20,000 units Estimated machine hours required 15,000 hours Estimated labor hours required 5,000 labor-hours Variable Overhead Costs $150,000 If Baltimore Automotive Corp. believes that machine-hours is the only cost driver of variable overhead, what will be the budgeted variable overhead cost rate per unit

Budgeted Variable overhead Cost rate per unit is $13.3

Explanation:

Variable overhead Costs is $150,000

Estimated Machine hours = 15,000 hours

We have to first derive the Cost rate Per hour of production

This will be: = (Variable overhead costs) $150,000 divided by (Machine Hours) 15,000 hrs

= $10 Per Machine Hour

This interprets as the for every machine hour spent on production we incur $10.

Subsequently, 20,000 units were produced with the entire 15,000 machine hours.

This implies, 1 machine hour will produce = (20,000units/15,000hrs) units = 1.33 units

Budgeted Variable overhead Cost rate per unit will now become = $10 per Machine Hour x 1.33 units per machine hour = $13.3/Unit of production

$10 per machine hour

Explanation:

the budgeted overhead cost rate per unit = estimated variable overhead expense / estimated total machine hours = $150,000 / 15,000 = $10 per machine hour

Variable overhead expenses include indirect manufacturing costs that vary according to different production levels and are assigned to the production processes based on a predetermined cost driver, e.g. supervisors' salaries, utilities assigned to specific machinery, etc.

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