The manufacturing overhead budget at Polich Corporation is b

The manufacturing overhead budget at Polich Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 1,600 direct labor-hours will be required in February. The variable overhead rate is $3.40 per direct labor-hour. The company\'s budgeted fixed manufacturing overhead is $28,320 per month, which includes depreciation of $3,680. All other fixed manufacturing overhead costs represent current cash flows.

The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for February should be:

Multiple Choice

$21.10 per direct labor-hour

$17.70 per direct labor-hour

$18.80 per direct labor-hour

$3.40 per direct labor-hour

Solution

A. $21.10 per direct labor-hour

Variable manufacturing overhead = Budgeted direct labor-hours * Variable manufacturing overhead rate = 1,600 * $3.40 = $5,440

Total manufacturing overhead = Variable manufacturing overhead + Fixed manufacturing overhead = $5,440 + $28,320 = $33,760

Predetermined overhead rate for the month = Total manufacturing overhead / Budgeted direct labor-hours = $33,760 / 1,600 = $21.10 per direct labor-hour