Question

Chloe CVBA is developing their manufacturing overhead budget for June, which is based on budgeted direct labor hours. The variable overhead rate is $7.50 per direct labor hour and 5,000 direct labor hours are budgeted for June. Fixed manufacturing overhead is budgeted at $56,000. All overhead costs are current cash flows except for $6,720 of depreciation. What should the manufacturing overhead budget indicate for cash disbursements for manufacturing overhead for the month of June?

Answer 1

Chloe CVBA's cash disbursements for manufacturing overhead in June equal $86,780, after accounting for both variable costs and fixed costs while excluding non-cash depreciation expenses.

Step-by-step explanation:

When Chloe CVBA is developing their manufacturing overhead budget for June, they start by calculating the variable and fixed overheads. The variable manufacturing overhead is found by multiplying the variable overhead rate by the budgeted direct labor hours (5,000 direct labor hours × $7.50 per direct labor hour = $37,500). To this, they add the fixed manufacturing overhead which is budgeted at $56,000. However, it is important to exclude non-cash expenses like depreciation when calculating cash disbursements. Thus, the total cash disbursements for manufacturing overhead for the month of June would be the total overhead cost minus the depreciation ($56,000 + $37,500 - $6,720).

The cash disbursements for manufacturing overhead for Chloe CVBA for June would therefore be ($93,500 - $6,720) = $86,780.