Asked by Shauntae Davis on Apr 29, 2024
Verified
Haylock Incorporated bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 5,600 direct labor-hours will be required in August. The variable overhead rate is $5.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $69,440 per month, which includes depreciation of $15,680. All other fixed manufacturing overhead costs represent current cash flows. The August cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:
A) $99,680
B) $84,000
C) $53,760
D) $30,240
Fixed Manufacturing Overhead
Costs that do not change with the level of manufacturing output, including salaries of managers and depreciation of factory equipment.
Variable Overhead Rate
This rate reflects the cost of variable overhead allocated to each unit of production, based on an activity such as direct labor hours.
Direct Labor-Hours
The total hours worked by employees directly involved in the manufacturing process or providing a service.
- Learn the process involved in establishing a manufacturing overhead budget, including the differentiation of costs into variable and fixed categories.
Verified Answer
Variable overhead cost = 5,600 direct labor-hours x $5.40 per direct labor-hour = $30,240
Fixed overhead cost (excluding depreciation) = $69,440 - $15,680 = $53,760
Total manufacturing overhead cost = $30,240 + $53,760 = $84,000
Since the question is asking for cash disbursements, we need to consider that depreciation is a non-cash expense. Therefore, the cash disbursement for August would be:
Cash disbursement for manufacturing overhead = Total manufacturing overhead cost - Depreciation
Cash disbursement for manufacturing overhead = $84,000 - $15,680 = $68,320
Therefore, the best choice is B) $84,000.
Learning Objectives
- Learn the process involved in establishing a manufacturing overhead budget, including the differentiation of costs into variable and fixed categories.
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