The manufacturing overhead budget at Foshay Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 7,200 direct labor-hours will be required in May. The variable overhead rate is $7.70 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $139,680 per month, which includes depreciation of $24,850. 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) $7.70
B) $27.10
C) $23.60
D) $19.40

Question

Collin Mireault · 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 as the total fixed overhead costs divided by the total direct labor-hours. Therefore, the calculation is as follows: Fixed overhead rate = $139,680 / 7,200 hours = $19.40 per hour. Adding the variable overhead rate of $7.70 per hour gives a total of $27.10 per hour.

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