Question

The manufacturing overhead budget at Foshay Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 5,800 direct labor-hours will be required in May. The variable overhead rate is $9.10 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $104,400 per month, which includes depreciation of $8,120. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for May should be:

A. $25.70
B. $27.10
C. $18.00
D. $9.10

Answer 1

B. $27.10

Step-by-step explanation:

The computation of the predetermined overhead rate is shown below:

As we know that

Predetermined overhead rate = Total estimated manufacturing overhead ÷ Budgeted direct Labor hours

where,

Variable overhead rate per hour = $9.10 per hour

And,

Fixed Manufacturing overhead = $104,400

Now

Total Estimated manufacturing overhead is

= 5,800 hours × $9.10 per hour + $104,400

= $157,180

And, the direct labor hours is 5,800

So, the predetermined overhead rate is

= $157,180 ÷ 5,800 hours

= $27.10 per hour

We simply applied the above formula