Dano Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $1.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $110,200 per month, which includes depreciation of $28,880. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 7,600 direct labor-hours will be required in December.
-The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for December should be:

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the total manufacturing overhead (fixed and variable) by the estimated level of activity (in this case, direct labor-hours).

Total manufacturing overhead = Fixed manufacturing overhead + Variable manufacturing overhead
= $110,200 + ($1.50 per direct labor-hour x 7,600 direct labor-hours)
= $110,200 + $11,400
= $121,600
 
Predetermined overhead rate = Total manufacturing overhead / Estimated direct labor-hours
= $121,600 / 7,600
= $16.00 per direct labor-hour

Therefore, the answer is C.

Dano Inc Bases Its Manufacturing Overhead Budget on Budgeted Direct Labor-Hours