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

Since the company recomputes its predetermined overhead rate every month, we need to calculate the overhead rate for April separately. The formula for calculating the predetermined overhead rate is:

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base

The estimated total manufacturing overhead cost for April is $107,400 ($26,850 + $17,900 + $10,740 + $52,910). The estimated total amount of the allocation base is the estimated total direct labor hours for April, which is 6,000 hours. Therefore, the predetermined overhead rate for April is:

Predetermined overhead rate = $107,400 ÷ 6,000 = $17.90 per direct labor hour

Thus, option C is the correct answer.