Asked by Latoya Alexander on Jun 14, 2024
Verified
The manufacturing overhead budget at Franklyn Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,400 direct labor-hours will be required in January. The variable overhead rate is $1.30 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $60,280 per month, which includes depreciation of $17,160. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:
A) $5,720
B) $43,120
C) $48,840
D) $66,000
Variable Overhead Rate
This rate is used to apply the variable overhead costs to production activities, based on an activity base.
Direct Labor-Hours
The total hours worked by employees directly involved in the manufacturing process or providing a service, used as a basis for allocating labor costs.
Fixed Manufacturing Overhead
Costs related to the production process that do not vary with the volume of production, such as rent, depreciation, and salaries of permanent staff.
- Acquire knowledge on the steps required to formulate a budget for manufacturing overhead, with emphasis on recognizing the variance between variable and fixed costs.
Verified Answer
Total Manufacturing Overhead = Variable Overhead + Fixed Overhead
Total Manufacturing Overhead = ($1.30/direct labor-hour x 4,400 direct labor-hours) + $60,280
Total Manufacturing Overhead = $5,720 + $60,280
Total Manufacturing Overhead = $66,000
Next, we need to determine the cash disbursements for January. We know that the depreciation amount of $17,160 is a non-cash expense and can be excluded from the cash disbursements. Therefore:
Cash Disbursements for Manufacturing Overhead = Variable Overhead + Fixed Overhead (excluding depreciation)
Cash Disbursements for Manufacturing Overhead = ($1.30/direct labor-hour x 4,400 direct labor-hours) + ($60,280 - $17,160)
Cash Disbursements for Manufacturing Overhead = $5,720 + $43,120
Cash Disbursements for Manufacturing Overhead = $48,840
Therefore, the answer is C) $48,840.
Learning Objectives
- Acquire knowledge on the steps required to formulate a budget for manufacturing overhead, with emphasis on recognizing the variance between variable and fixed costs.
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