rate per machine hour

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A basis used in absorption costing for absorbing the manufacturing overhead into the cost units produced. The formula is:budgeted manufacturing overhead/budgeted machine hours.

budgeted manufacturing overhead/budgeted machine hours.

This rate may not be very useful for managers if overheads do not increase or decrease as machine hours increase or decrease. Activity-based costing systems can provide a more accurate cause-and-effect allocation of costs.

Subjects: Accounting.

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