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1 April, 15:51

The manufacturing overhead budget at Foshay Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 5,800 direct labor-hours will be required in May. The variable overhead rate is $9.10 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $104,400 per month, which includes depreciation of $8,120. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for May should be:

A. $25.70

B. $27.10

C. $18.00

D. $9.10

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Answers (1)
  1. 1 April, 18:54
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    B. $27.10

    Explanation:

    The computation of the predetermined overhead rate is shown below:

    As we know that

    Predetermined overhead rate = Total estimated manufacturing overhead : Budgeted direct Labor hours

    where,

    Variable overhead rate per hour = $9.10 per hour

    And,

    Fixed Manufacturing overhead = $104,400

    Now

    Total Estimated manufacturing overhead is

    = 5,800 hours * $9.10 per hour + $104,400

    = $157,180

    And, the direct labor hours is 5,800

    So, the predetermined overhead rate is

    = $157,180 : 5,800 hours

    = $27.10 per hour

    We simply applied the above formula
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