The manufacturing overhead budget at Pendley Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 8,900 direct labor-hours will be required in August. The variable overhead rate is $5.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $133,500 per month, which includes depreciation of $30,260. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for August should be:

Question

Quizplus · Accepted Answer

The formula to calculate predetermined overhead rate is:

Predetermined Overhead Rate = (Budgeted Fixed Manufacturing Overhead Costs + Budgeted Variable Manufacturing Overhead Rate * Budgeted Direct Labor Hours) / Budgeted Direct Labor Hours

Substituting the values in the formula:

Predetermined Overhead Rate = ($133,500 + ($5.50 * 8,900)) / 8,900
Predetermined Overhead Rate = ($133,500 + $48,950) / 8,900
Predetermined Overhead Rate = $182,450 / 8,900
Predetermined Overhead Rate = $20.50 per direct labor hour

Hence, the predetermined overhead rate for August should be $20.50.

The Manufacturing Overhead Budget at Pendley Corporation Is Based on Budgeted