Plant-wide overhead absorption rate per direct labour hour

Steps:

• Calculate machining overhead: $12 × 4000 hours =$48,000
• Calculate assembly overhead: $7 × 16,000 hours =$112,000
• Total overhead: $48,000 +$112,000 = $160,000
• Total direct labour hours: 4000 + 16,000 = 20,000
• Plant-wide rate: $160,000 ÷ 20,000 =$8 per hour

Why C is correct:

• The plant-wide rate uses total budgeted overhead divided by total budgeted direct labour hours, yielding $8 exactly.

Why the others are wrong:

• A: Ignores machining overhead, using only assembly ($112,000 ÷ 20,000 =$5.60, close but misapplied).
• B: Averages rates unweighted (($12 +$7) ÷ 2 = $9.50, then adjusted wrongly).
• D: Adds insurance to total overhead but divides by assembly hours only ($164,800 ÷ 16,000 ≈$10.30, misbasis).

Final answer: C