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) $9.10
B) $27.10
C) $18.00
D) $25.70

Question

Bích Ngân · Accepted Answer

Final Answer : B, Explanation :  The predetermined overhead rate for May is calculated by adding the variable overhead rate per direct labor-hour to the fixed overhead rate per direct labor-hour. The fixed overhead rate per direct labor-hour is calculated by dividing the total fixed overhead costs by the number of direct labor-hours. Therefore, the calculation is as follows: Fixed overhead rate per direct labor-hour = $104,400 / 5,800 = $18.00. Adding the variable overhead rate of $9.10 to the fixed overhead rate of $18.00 gives a total of $27.10 per direct labor-hour.

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