The Forbes Corporation uses a standard cost system in which overhead costs are a

Question

The Forbes Corporation uses a standard cost system in which overhead costs are applied to products on the basis of standard direct labor-hours (DLHs). The following data applied to the company's activities for June:

Actual fixed manufacturing overhead cost incurred…..$161,450

Denominator activity…….50,000 DLHs

Number of units completed……..21,000 units

Fixed overhead budget variance………$11,450 unfavorable

Standard direct labor hours per unit……….3 DLHs

The fixed component of the predetermined overhead rate for June is:

$3.00 per DLH

$3.23 per DLH

$3.78 per DLH

$3.46 per DLH

Please show all work

$3.00 per DLH

$3.23 per DLH

$3.78 per DLH

$3.46 per DLH

Please show all work

Explanation / Answer

We will have to calculate the budgeted fixed overhead with the use of information provided for fixed overhead budget variance and actual manufacturing overhead.

The formula for Fixed Budget Overhead Variance is given below:

Fixed Overhead Budget Variance = Fixed Budgeted Overhead - Actual Manufacturing Overhead

Substituting the values provided in the question, we get,

-11,450 = Fixed Budgeted Overhead - 161,450

Rearranging Values, we get,

Fixed Budgeted Overhead = 150,000

________

Now we can calculate the fixed component of the predetermined overhead rate as follows:

Predetermined Overhead Rate (Fixed Component) = Fixed Budgeted Overhead/Total Budgeted Direct Labor Hours = 150,000/50,000 = $3 per DLH (which is Option A)

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