Axsom Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 1,300 direct labor-hours will be required in March. The variable overhead rate is $8.90 per direct laborhour. The company's budgeted fixed manufacturing overhead is $20,020 per month, which includes depreciation of $2,600. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. What should be the predetermined overhead rate for March

Estimated manufacturing overhead rate = $24.3 per direct labor hour

Explanation:

Giving the following information:

The direct labor budget indicates that 1,300 direct labor-hours will be required in March.

The variable overhead rate is $8.90 per direct labor hour.

The company's budgeted fixed manufacturing overhead is $20,020 per month.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

Estimated manufacturing overhead rate = (20,020/1,300) + 8.9

Estimated manufacturing overhead rate = $24.3 per direct labor hour

Overhead rate = $15.4 per direct labour hour

Explanation:

The predetermined overhead absorption rate = Estimated overhead for march / Estimated direct labour hours

= $20,020 / 1,300 hours

= $15.4 per hour

Overhead rate = $15.4 per direct labour hour

Note that deprecation is part of the fixed cost and that the examiner included the additional information about it just to distract the student