Question

Preparing an operating budget—manufacturing overhead budget Bennett Company expects to produce 2,030 units in January that will require 8,120 hours of direct labor and 2,210 units in February that will require 8,840 hours of direct labor. Bennett budgets \(10 per unit for variable manufacturing overhead; \)2,100 per month for depre000ciation; and $78,460 per month for other fixed manufacturing overhead costs. Prepare Bennett’s manufacturing overhead budget for January and February, including the predetermined overhead allocation rate using direct labor hours as the allocation base.

Short answer

The predetermined overhead allocation rate is $12 direct labor per hour.

Step-by-step solution

Preparation of manufacturing overhead for January and February

Particulars	January	February
Budgeted units to be produced	2,030	2,210
VOH* Budgeted units to be produced	x 10	x 10
Total Budgeted VOH	$20,300	$22,100
Budgeted FOH
-Depreciation	$2,100	$2,100
-Other fixed manufacturing overheads	$78,460	$78,460
Total Budgeted FOH	$80,560	$80,560
Budgeted manufacturing overhead costs	$100,860	$102,660

Calculation of predetermined overhead allocation rate using direct labor hours as the allocation base

Particulars	January	February	Total
Budgeted manufacturing overhead costs	$100,860	$102,660	$203,520
Direct labor hours	8,120	8,840	16,960
Predetermined overhead allocation rate ($203,520/16,960)			$12/DLHr