Avitia Inc. bases its manufacturing overhead budget on budgeted direct labor-hou

Question

Avitia Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 3,700 direct labor-hours will be required in September. The variable overhead rate is $5.70 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $48,100 per month, which includes depreciation of $5,550. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for September should be:

Explanation / Answer

Variable overhead = ( $5.70 x 3,700 ) = $ 21,090 Fixed overhead including depreciation . . . . . . . .$ 48,100 - Non-cash depreciation expense . . . . . . . . . . . . .(5,550) = Fixed overhead cash outflows . . . . . . . . . . . . $ 42,550 Cash disbursements for manufacturing overhead = ( $42,550 + $ 21,090 ) = $ 63,640

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