Arciba Incorporated bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,400 direct labor-hours will be required in January. The variable overhead rate is $9.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $130,980 per month, which includes depreciation of $10,360. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for January should be:

Question

Quizplus · Accepted Answer

The predetermined overhead rate for January is calculated by adding the total variable and fixed manufacturing overhead costs and then dividing by the total budgeted direct labor-hours. The total variable overhead is 7,400 hours * $9.50 = $70,300. The total fixed overhead is $130,980. Therefore, the total overhead is $70,300 + $130,980 = $201,280. Dividing this by 7,400 hours gives a rate of $27.20 per direct labor-hour.

Arciba Incorporated Bases Its Manufacturing Overhead Budget on Budgeted Direct