Deriving Overhead Rates: Tastee-Treat Company prepares, packages, and distributes six frozen vegetables in two different sized containers. The different vegetables and different sizes are prepared in large batches. The company uses a normal costing job order costing system. Manufacturing overhead is assigned to batches by a predetermined rate on the basis of machine-hours. The manufacturing overhead costs incurred by the company during two recent years (adjusted for changes using current prices and wage rates) are as follows:

Required: Tastee-Treat Company expects to operate at a 2.3 million machine-hour level of activity in Year 4. Using the data from the two recent years, calculate fixed and variable overhead rates to assign manufacturing overhead to its products. (Hint: The variable rate can be found by comparing the change in costs to the change in hours.

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Machine-hours worked Manufacturing overhead costs incurred: Indirect labor Employee benefits Supplies Power Heat and light Supervision Depreciation Property taxes and insurance Total overhead costs Year 1 2,760,000 Year 2 2,160,000 $11,040,000 $ 8,640,000 4,140,000 2,760,000 2,208,000 3,240,000 2,160,000 1,728,000 552,000 552,000 2,965,000 2,625,000 7,930,000 7,930,000 3,005,000 3,005,000 $34,500,000 $29,880,000