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Avril Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $4.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $54,080 per month, which includes depreciation of $3,840. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 3,200 direct labor-hours will be required in October. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for October should be:

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Answer:

Estimated manufacturing overhead rate= $21.5 per direct labor hour

Explanation:

Giving the following information:

The variable overhead rate is $4.60 per direct labor-hour.

Budgeted fixed manufacturing overhead is $54,080 per month

The direct labor budget indicates that 3,200 direct labor-hours will be required in October.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= (54,080/3,200) + 4.6

Estimated manufacturing overhead rate= $21.5 per direct labor hour

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