Question

Axsom Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 1,300 direct labor-hours will be required in March. The variable overhead rate is $8.90 per direct laborhour. The company's budgeted fixed manufacturing overhead is $20,020 per month, which includes depreciation of $2,600. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. What should be the predetermined overhead rate for March

Answer 1

Overhead rate = $15.4 per direct labour hour

Step-by-step explanation:

The predetermined overhead absorption rate = Estimated overhead for march/ Estimated direct labour hours

= $20,020/ 1,300 hours

= $15.4 per hour

Overhead rate = $15.4 per direct labour hour

Note that deprecation is part of the fixed cost and that the examiner included the additional information about it just to distract the student

Answer 2

Estimated manufacturing overhead rate= $24.3 per direct labor hour

Step-by-step explanation:

Giving the following information:

The direct labor budget indicates that 1,300 direct labor-hours will be required in March.

The variable overhead rate is $8.90 per direct labor hour.

The company's budgeted fixed manufacturing overhead is $20,020 per month.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= (20,020/1,300) + 8.9

Estimated manufacturing overhead rate= $24.3 per direct labor hour