Penny Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following data for its most recent year of operations. Estimated manufacturing overhead $ 157,800 Estimated machine-hours 4,650 Actual manufacturing overhead $ 157,500 Actual machine-hours 4,880 The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of computing the company's predetermined overhead rate for the year. The predetermined overhead rate is closest to: Multiple Choice $32.27 $33.94 $33.87 $42.62

Absorption costing is method of costing where overheads are charged to units produced using volume-based bases. e.g machine hours, labour hours e.t.c.

The overheads are charged to units produced using the pre-determined overhead absorption rate, which is computed as follows:

Pre-determined overhead absorption rate (POAR)= Estimated Overhead/Estimated machine hours

POAR = 157,800/4,650 machine hours = $ 33.94 per machine hour

POAR = $33.94 per machine hour