Question

The manufacturing overhead budget at Franklyn Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 3,900 direct labor-hours will be required in January. The variable overhead rate is $7 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $43,230 per month, which includes depreciation of $3,530. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: Multiple Choice

a. $27,300
b. $39,700
c. $70,530
d. $67,000

Answer 1

January cash disbursements for manufacturing overhead are calculated by excluding non-cash expenses from the fixed overhead and adding the variable overhead. The total for Franklyn Corporation is $67,000, which is the sum of the cash fixed overhead of $39,700 and the variable overhead of $27,300. Hence, the provide correct option in final answer is $67,000.

Step-by-step explanation:

The question asks us to calculate January cash disbursements for manufacturing overhead based only on current cash flows, which means we must exclude non-cash expenses like depreciation. The fixed manufacturing overhead is given as $43,230 per month, which includes depreciation of $3,530. To find the cash disbursements, we need to subtract the non-cash depreciation from the total fixed overhead. So, without depreciation, the cash disbursements for fixed overhead are $43,230 - $3,530 = $39,700.

Next, we add the variable overhead. The variable overhead rate is $7 per direct labor-hour, and 3,900 direct labor-hours are budgeted for January. Therefore, the variable overhead for January is 3,900 hours x $7/hour = $27,300.

Finally, to find the total January cash disbursements for manufacturing overhead, we add the variable overhead and the cash portion of the fixed overhead: $39,700 (fixed) + $27,300 (variable) = $67,000. So, the answer is option (d) $67,000.