A manufacturer uses machine hours to assign overhead costs to products. Budgeted information for the next year follows. Budgeted factory overhead costs $ 574,200 Budgeted machine hours 6,600 Compute the plantwide overhead rate for the next year based on machine hours.

The plantwide overhead rate is $87 per Machine hour.

Explanation:

Overheads rate or the overhead absorption rate (OAR) is the rate at which the indirect costs or overheads are assigned to different products. The OAR is calculated by dividing the budgeted overheads by the budgeted activity base. For example, in this case the budgeted overheads is the factory overhead costs and the budgeted activity base is the machine hours.

Overhead absorption rate = Budgeted Overheads / Budgeted activity base

Overhead Absorption rate = 574200 / 6600  =  $87 per Machine hour

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