Mountain Trails manufactures backpacks for adventurers. Management is preparing budgets for the month, and is trying to determine the Overhead Budget amounts. Variable overhead is budgeted to be incurred at a rate of $5/direct labor hour (including utilities, indirect materials, and indirect labor). Budgeted direct labor hours are 4,500 hours for the period. Fixed overhead amounts include the following: Factory rent $5,000; Factory supervisor salary $6,000; Depreciation $8,000; Insurance $1,500; and Factory security $2,500.
What is the predetermined overhead rate (applied on the basis of direct labor hours? (Round to 3 decimal places)

Question

Quizplus · Accepted Answer

Variable overhead = $5/hour x 4,500 hours = $22,500
Fixed overhead = $5,000 + $6,000 + $8,000 + $2,500 + $1,500 = $23,000
Total Overhead = $23,000 + $22,500 = $45,500
Predetermined overhead rate: $45,500 / 4,500 hours = $10.111/direct labor hour

Mountain Trails Manufactures Backpacks for Adventurers