Suppose the total machine maintenance cost allocated to a production department is Tsh120,000 and the machine hours recorded in the department are 6,000. If one unit of a product processed requires 5 machine hours. Calculate amount of overhead costs to be assigned to the product.

Answer 1

To calculate the amount of overhead costs to be assigned to the product, we can use the predetermined overhead rate.

Predetermined overhead rate = Total machine maintenance cost / Total machine hours recorded

Predetermined overhead rate = Tsh120,000 / 6,000 hours = Tsh20 per machine hour

Now, we know that one unit of the product requires 5 machine hours. So, the overhead costs assigned to one unit of the product would be:

Overhead costs per unit = Predetermined overhead rate x Machine hours per unit
= Tsh20 per hour x 5 hours
= Tsh100

Therefore, the amount of overhead costs to be assigned to one unit of the product is Tsh100.