Question

Edison Corporation's variable manufacturing overhead rate is $5.00 per direct labor-hour. Total budgeted fixed overhead is $25,000 per month. The $25,000 per month includes $7,000 in depreciation expense. Total budgeted direct labor-hours for the month of July is 20,000. Based on the month of July only, the predetermined overhead rate is $ (Enter your answer as a number rounded to 2 decimal places.)

Answer 1

Based on the month of July only, the predetermined overhead rate is $6.25.

Predetermined overhead rate

First step

Total budgeted manufacturing overhead =(Budgeted direct labor hours × Variable overhead rate) + Total budgeted fixed overhead

Total budgeted manufacturing overhead = (20,000 × $5) + $25,000

Total budgeted manufacturing overhead = $100,000 + $25,000

Total budgeted manufacturing overhead = $125,000

Second step

Predetermined overhead rate=Total budgeted manufacturing overhead/Total budgeted direct labor-hours

Predetermined overhead rate=$125,000/20,000

Predetermined overhead rate=6.25

Inconclusion the predetermined overhead rate is $6.25.

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