Question

Dinklemyer Corporation uses direct labor hours as its single cost driver. Actual overhead costs and actual direct labor hours for the first five months of the current year are as follows. Month Actual Total Overhead Actual Direct Labor Hours January $ 975,000 19,250 February 950,000 18,400 March 860,000 17,000 April 700,000 12,375 May 760,000 13,200 a. Compute the company's estimated variable manufacturing overhead cost per direct labor hour. b. Estimate the company's total monthly fixed manufacturing overhead cost. c. Estimate the company's total manufacturing overhead for June through August if 40,000 total direct labor hours are budgeted for that specific three-month period.

Answer 1

a. Estimated variable manufacturing overhead cost per direct labor hour = $40 per hour

b. Total monthly fixed manufacturing overhead cost = $205,000

c. Total manufacturing overhead for June through August = $2,215,000

Step-by-step explanation:

a. Compute the company's estimated variable manufacturing overhead cost per direct labor hour.

Difference between high and low overhead = January overhead - April overhead = $975,000 - $700,000 = $275,000

Difference between high and low Direct Labor Hours = January Direct Labor Hours - April Direct Labor Hours = 19,250 - 12,375 = 6,875

Therefore, we have:

Estimated variable manufacturing overhead cost per direct labor hour = Difference between high and low overhead / Difference between high and low Direct Labor Hours = $275,000 / 6,875 = $40 per hour

b. Estimate the company's total monthly fixed manufacturing overhead cost.

Total monthly fixed manufacturing overhead cost = High overhead - (Estimated variable manufacturing overhead cost per direct labor hour * High direct labor) = $975,000 - ($40 * 19,250) = $205,000

c. Estimate the company's total manufacturing overhead for June through August if 40,000 total direct labor hours are budgeted for that specific three-month period.

Total manufacturing overhead for June through August = (Total monthly fixed manufacturing overhead cost * Number of Months from June to August) + (Estimated variable manufacturing overhead cost per direct labor hour * Budgeted direct labor hours) = ($205,000 * 3) + ($40 * 40,000) = $2,215,000