The Covey Corporation is preparing its Manufacturing Overhead Budget for the fou

Question

The Covey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable manufacturing overhead rate is $4.00 per direct labor-hour; the budgeted fixed manufacturing overhead is $64,000 per month, of which $18,000 is factory depreciation. If the budgeted cash disbursements for manufacturing overhead for November are $90,000, then the budgeted direct labor-hours for November must be:

11,000 direct labor-hours

22,500 direct labor-hours

6,500 direct labor-hours

2,000 direct labor-hours

Explanation / Answer

Cash disbursements for manufacturing overhead shall not include depreciation as depreciation is a notional cost and not real cash outfolw.

Therefore, Fixed Manufacturing overheads included in above $90,000 are $46,000($64000-$18000)

Variable manufacturing overheads = $90,000 - $46000

= $44,000

Direct labout hours = $44,000/$4

= 11,000 direct labour hours

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