Question: At the start of the year Vencor Company estimated manufacturing

At the start of the year, Vencor Company estimated manufacturing overhead to be $2,000,000. Eighty percent of the overhead is fixed and relates to depreciation of equipment. The remaining 20 percent is variable. The company estimated machine hours to be 100,000 and thus used a predetermined overhead rate of $20 per machine hour.
During the year, the company devised a new way to sequence movements of material among the machines, which resulted in a savings of 30,000 machine hours.

Estimate the amount of manufacturing overhead that the company would save related to the reduction in machine hours. Why is the savings less than $20 per machine hour?

View Solution:

Sale on SolutionInn
  • CreatedSeptember 12, 2013
  • Files Included
Post your question