The manufacturing overhead budget at Mahapatra Corporation is based on budgeted

Question

The manufacturing overhead budget at Mahapatra Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 8,800 direct labor-hours will be required in May. The variable overhead rate is $9.20 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $109,120 per month, which includes depreciation of $18,240. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for May should be:

Explanation / Answer

Solution.

Formula = Estimated manufacturing overhead / ALLOCATION BASE

ACTIVITY BASE = 8,800 direct labor-hours

Variable overhead = 8,800 x $9.20 = $90,960

Fixed manufacturing overhead = $109,120

predetermined overhead rate for May = $90,960 + $109,120 / 8,800 direct labor-hours

                                                      = 22.73

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