Aaron, Inc. estimates direct labor costs and manufacturing overhead costs for the coming year to be $750,000 and $550,000, respectively. Aaron allocates overhead costs based on machine hours. The estimated total labor hours and machine hours for the coming year are 18,000 hours and 7000 hours, respectively. What is the predetermined overhead allocation rate? (Round your answer to the nearest cent.)
A) $107.14 per machine hour
B) $30.56 per labor hour
C) $1.36 per labor hour
D) $78.57 per machine hour
D) $78.57 per machine hour
Explanation: Predetermined overhead allocation rate = Total estimated overhead costs / Total estimated quantity of the overhead allocation base
Predetermined overhead allocation rate = $550,000 / 7000 machine hours = $78.57 per machine hour
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