Question

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

Budgeted direct labor-hours

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

8,000 8,200 8,500 7,800

The company uses direct labor-hours as its overhead allocation base. The variable portion of its predetermined manufacturing overhead rate is $3.25 per direct labor-hour and its total fixed manufacturing overhead is $48,000 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.

Yuvwell Corporation
Manufacturing overhead budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Total direct labor hours needed	8,000	8,200	8,500	7,800	32,500
Variable manufacturing overhead rate	3.25	3.25	3.25	3.25	3.25
Variable manufacturing overhead (Total direct labor hours needed x Variable manufacturing overhead rate)	26,000	26,650	27,625	25,350	105,625
Fixed manufacturing overhead	48,000	48,000	48,000	48,000	192,000
Total manufacturing overhead ( Variable manufacturing overhead + fixed manufacturing overhead)	74,000	74,650	75,625	73,350	297,625

2.

Variable manufacturing overhead rate per direct labor hour = $3.25

Total fixed manufacturing overhead = $192,000

Total budgeted direct labor hours = 32,500

Predetermined overhead rate = Variable manufacturing overhead rate per direct labor hour + Total fixed manufacturing overhead/ Total budgeted direct labor hours

= 3.25+ 192,000/32,500

= 3.25+5.91

= $9.13 per direct labor hour