Cartier Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $5.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $39,930 per month, which includes depreciation of $12,870. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 3,300 direct labor-hours will be required in April. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for April should be:

Question

Quizplus · Accepted Answer

Predetermined overhead rate = (Variable overhead rate x Budgeted direct labor-hours) + Fixed overhead costs/ Budgeted direct labor-hours

Variable overhead rate = $5.80 per direct labor-hour
Budgeted direct labor-hours for April = 3,300
Fixed overhead costs per month = $39,930 - $12,870 = $27,060

Predetermined overhead rate = ($5.80 x 3,300) + $27,060/ 3,300 = $17.90 per direct labor-hour.

Therefore, the correct answer is C.