Figure 11-4. Kris Company calculates its predetermined rates using practical volume,which is 325,000 units.The standard cost system allows 3 direct labor hours per unit produced.Overhead is applied using direct labor hours.The total budgeted overhead is $4,260,000,of which $994,000 is fixed overhead.The actual results for the year are as follows:
Refer to Figure 11-4.The predetermined variable overhead rate is:
A)$3.00 per direct labor hour.
B)$2.50 per direct labor hour.
C)$5.50 per direct labor hour.
D)$3.35 per direct labor hour.
E)none of these are correct.

Question

Figure 11-4. Kris Company calculates its predetermined rates using practical volume,which is 325,000 units.The standard cost system allows 3 direct labor hours per unit produced.Overhead is applied using direct labor hours.The total budgeted overhead is $4,260,000,of which $994,000 is fixed overhead.The actual results for the year are as follows:
 Refer to Figure 11-4.The predetermined variable overhead rate is:
A)$3.00 per direct labor hour. 
B)$2.50 per direct labor hour. 
C)$5.50 per direct labor hour. 
D)$3.35 per direct labor hour. 
E)none of these are correct.

Quizplus · Accepted Answer

First, we need to calculate the total variable overhead budgeted for 325,000 units.
Total budgeted overhead - Fixed overhead = Variable overhead
$4,260,000 - $994,000 = $3,266,000

Then, we need to divide the variable overhead by the total direct labor hours budgeted for 325,000 units.
325,000 units x 3 direct labor hours per unit = 975,000 direct labor hours
$3,266,000 ÷ 975,000 direct labor hours = $3.35 per direct labor hour

Therefore, the predetermined variable overhead rate is $3.35 per direct labor hour. Option D is the correct answer.