The manufacturing overhead budget at Foshay Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 6,100 direct labor-hours will be required in May. The variable overhead rate is $8.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $111,630 per month, which includes depreciation of $24,960. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for May should be:

The predetermined overhead rate for May = 26.8 per hour

Explanation:

Predetermined overhead rate:

A predetermined overhead rate is often an annual rate for assigning or allocating indirect manufacturing costs to the goods it produces.

Formula for Predetermined overhead rate:

Predetermined overhead rate = Total estimated manufacturing overhead / Budgeted labor hours

Formula for total estimated manufacturing overhead:

Total Estimated manufacturing overhead = Total direct labor budget hours * Variable overhead rate + Fixed Manufacturing overhead

As Total direct labor budget hours required per month = 6,100 Hrs

Variable overhead rate = $ 8.50 per hour

Fixed Manufacturing overhead including the $24,960 depreciation = $ 1,11,630 per month

therefore by putting the values in the above formula, we get

Total Estimated manufacturing overhead = 6,100 * 8.50 + 1,11,630

Total Estimated manufacturing overhead = $1,63,480

By putting the values in the above formula, we get

Predetermined overhead rate = $1,63,480 / 6,100 hrs

Predetermined overhead rate = 26.8 per hour