Question

The manufacturing overhead budget at Latronica Corporation is based on budgeted direct labor-hours.

The direct labor budget indicates that 7,100 direct labor-hours will be required in August. The variable
overhead rate is $8.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is
$132,770 per month, which includes depreciation of $24,850. All other fixed manufacturing overhead
costs represent current cash flows. The company recomputes its predetermined overhead rate every
month. The predetermined overhead rate for August should be:
A. $8.60
B. $27.30
C. $23.80
D. $18.70

Answer 1

The predetermined overhead rate for August at Latronica Corporation is calculated by adding the variable and fixed overhead (excluding depreciation), and then dividing by the total direct labour-hours. The correct rate is $23.80 per direct labour-hour.

Step-by-step explanation:

To calculate the predetermined overhead rate for August at Latronica Corporation, we need to consider both variable and fixed manufacturing overheads. The variable overhead is given as $8.60 per direct labour-hour, and with 7,100 direct labour-hours expected in August, the total variable overhead will be 7,100 hours * $8.60/hour = $61,060.

The total fixed manufacturing overhead is $132,770 per month. However, since the question states to exclude depreciation when recalculating the predetermined overhead rate, we subtract the depreciation from the fixed overhead: $132,770 - $24,850 = $107,920. Now, summing both variable and fixed overhead gives us: $61,060 + $107,920 = $168,980 total overhead for August.

To find the predetermined overhead rate, we divide the total overhead by the total direct labour-hours: $168,980 / 7,100 hours = $23.80. This makes the correct answer C. $23.80.