Question

The direct labor budget of Yuvwell Corporation for the upcoming fiscal year contains the following details concerning budgeted direct labor-hours:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Budgeted direct labor-hours	9,600	9,000	9,300	10,100

The company uses direct labor-hours as its overhead allocation base. The variable portion of its predetermined manufacturing overhead rate is $4.00 per direct labor-hour and its total fixed manufacturing overhead is $64,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $16,000 per quarter.

Required:

1. Prepare the company’s manufacturing overhead budget for the upcoming fiscal year.

2. Compute the company’s predetermined overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year.

Answer 1

1)

Manufacturing overhead budget

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Variable manufacturing overhead	38,400	36,000	37,200	40,400
Fixed manufacturing overhead
Fixed manufacturing overhead (other than depreciation )	48,000	48,000	48,000	48,000
Depreciation expenses	16,000	16,000	16,000	16,000
Estimated total manufacturing overhead costs	102,400	100,000	101,200	104,400

Predetermined overhead rate = Estimated total manufacturing overhead costs / Estimated total amount of the allocation base

Quarterly Predetermined overhead rate :

1st quarter = $ 102,400 / 9,600 hours = $ 10.67

2nd quarter = $ 100,000 / 9,000 hours = $ 11.11

3rd quarter = $ 101,200 / 9,300 hours = $ 10.88

4th quarter = $ 104,400 / 10,100 hours = $ 10.34

Annual predetermined overhead rate = [ $ 102,400 + $ 100,000 + $ 101,200 + $ 104,400 ] / [ 9,600 + 9,000 + 9,300 + 10,100 ] hours

Annual predetermined overhead rate = $ 408,000 / 38,000 hours = $ 10.74