Salge Inc. bases its manufacturing overhead budget on budgeted direct labor-hour

Question

Salge Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $7.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $94,050 per month, which includes depreciation of $16,280. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 5,700 direct labor-hours will be required in September. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for September should be: $24.30 $16.50 $7.80 $21.40

Explanation / Answer

Overhead rate for September : variable overhead rate + Fixed overhead rate
= 7.80 + (fixed manufacturing overhead/direct labour hour)
= 7.8 + (94050/5700)
= 7.8 + 16.5
=$ 24.30

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