Wallace's Wrench Company manufactures socket wrenches. For next month the vice-president of production plans on producing 4,400 wrenches per day. The company can produce as many as 5,000 wrenches per day, but are more likely to produce 4,500 per day. The demand for wrenches for the next three years is expected to average 4,250 wrenches per day. Fixed manufacturing costs per month total $336,600. The company works 20 days a month due to local zoning restrictions. Fixed manufacturing overhead is charged on a per wrench basis.
Required:
a. What is the theoretical fixed manufacturing overhead rate per wrench?
b. What is the practical fixed manufacturing overhead rate per wrench?
c. What is the normal fixed manufacturing overhead rate per wrench?
d. What is the master-budget fixed manufacturing overhead rate per wrench?

Question

Quizplus · Accepted Answer

The Answer is a. Theoretical overhead rate = $336,600/(5,000 × 20) = $3.366
b. Practical overhead rate = $336,600/(4,500 × 20) = $3.74
c. Normal overhead rate = $336,600/(4,250 × 20) = $3.96
d. Master-budget overhead rate = $336,600/(4,400 × 20) = $3.825

Wallace's Wrench Company Manufactures Socket Wrenches