Answer:
a. Estimated variable manufacturing overhead cost per direct labor hour = $40 per hour
b. Total monthly fixed manufacturing overhead cost = $205,000
c. Total manufacturing overhead for June through August = $2,215,000
Explanation:
a. Compute the company's estimated variable manufacturing overhead cost per direct labor hour.
Difference between high and low overhead = January overhead - April overhead = $975,000 - $700,000 = $275,000
Difference between high and low Direct Labor Hours = January Direct Labor Hours - April Direct Labor Hours = 19,250 - 12,375 = 6,875
Therefore, we have:
Estimated variable manufacturing overhead cost per direct labor hour = Difference between high and low overhead / Difference between high and low Direct Labor Hours = $275,000 / 6,875 = $40 per hour
b. Estimate the company's total monthly fixed manufacturing overhead cost.
Total monthly fixed manufacturing overhead cost = High overhead - (Estimated variable manufacturing overhead cost per direct labor hour * High direct labor) = $975,000 - ($40 * 19,250) = $205,000
c. Estimate the company's total manufacturing overhead for June through August if 40,000 total direct labor hours are budgeted for that specific three-month period.
Total manufacturing overhead for June through August = (Total monthly fixed manufacturing overhead cost * Number of Months from June to August) + (Estimated variable manufacturing overhead cost per direct labor hour * Budgeted direct labor hours) = ($205,000 * 3) + ($40 * 40,000) = $2,215,000
