Avitia Inc. bases its manufacturing overhead budget on budgeted direct labor-hou

Question

Avitia Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 3,700 direct labor-hours will be required in September. The variable overhead rate is $5.70 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $48,100 per month, which includes depreciation of $5,550. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for September should be:

a. $5.70

B.$13

c. 18.70

d. 17.20

Explanation / Answer

Hi,

Please find the answer as follows:

Predetermined Overhead Rate = Variable Overhead Rate + Fixed Overhead Rate

= 5.7 + 48100/3700 = $ 18.7 per direct labor hour

Answer is $ 18.7.

Thanks

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