Jewel Company calculates its predetermined rates using practical volume, which is 300,000 units. The standard cost system allows two direct labour hours per unit produced. Overhead is applied using direct labour hours. The total budgeted overhead is $3,200,000 of which $900,000 is fixed overhead. The actual results for the year are as follows:
$\begin{array}{ll}
\text { Units produced: } & 280,000 \
\text { Direct labour: } & 570,000 \text { hours }@\$ 9 \text { per hour } \
\text { Variable overhead: } & \$ 2,320,000 \
\text { Fixed overhead: } & \$ 872,000
\end{array}$
-Refer to the Figure.What is the predetermined variable overhead rate?
A)$1.50 per direct labour hour
B)$3.00 per direct labour hour
C)$3.83 per direct labour hour
D)$5.50 per direct labour hour

Question

Jewel Company calculates its predetermined rates using practical volume, which is 300,000 units. The standard cost system allows two direct labour hours per unit produced. Overhead is applied using direct labour hours. The total budgeted overhead is $3,200,000 of which $900,000 is fixed overhead. The actual results for the year are as follows:
 $\begin{array}{ll}
\text { Units produced: } & 280,000 \
\text { Direct labour: } & 570,000 \text { hours }@\$ 9 \text { per hour } \
\text { Variable overhead: } & \$ 2,320,000 \
\text { Fixed overhead: } & \$ 872,000
\end{array}$
-Refer to the Figure.What is the predetermined variable overhead rate?
A)$1.50 per direct labour hour
B)$3.00 per direct labour hour
C)$3.83 per direct labour hour
D)$5.50 per direct labour hour

Quizplus · Accepted Answer

The predetermined variable overhead rate is calculated by dividing the total budgeted variable overhead by the practical volume. In this case, the total budgeted variable overhead is $2,320,000 and the practical volume is 300,000 units. Therefore, the predetermined variable overhead rate is $2,320,000 / 300,000 units = $7.73 per unit. Since overhead is applied using direct labour hours, the predetermined variable overhead rate per direct labour hour is $7.73 / 2 hours = $3.83 per direct labour hour.

Jewel Company Calculates Its Predetermined Rates Using Practical Volume, Which