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4 January, 11:02

The manufacturing overhead budget at Polich Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 7,000 direct labor-hours will be required in February. The variable overhead rate is $8.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $102,900 per month, which includes depreciation of $18,050. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for February should be:

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  1. 4 January, 13:22
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    Total overhead rate = $20.92 per labor hour

    Explanation:

    The predetermined overhead rate for February shall be:

    Based on variable overhead + fixed overhead

    Fixed overhead shall include only cash cost and not to non cash cost like depreciation, as is directly not related to cost.

    Therefore, fixed cost in consideration = $102,900 - $18,050 = $84,850

    Total cost = $8.8 per direct labor hour + $84,850/7,000 = $12.12

    Total overhead rate = $20.92 per labor hour
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