Question

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:

Answer 1

Total overhead rate = $20.92 per labor hour

Step-by-step 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