Arciba Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,400 direct labor-hours will be required in January. The variable overhead rate is $9.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $130,980 per month, which includes depreciation of $10,360. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for January should be:

$27.20

Explanation:

The computation of the predetermined overhead rate is shown below:

= Variable overhead rate per hour + Fixed Overhead rate per hour

where,

Variable overhead rate per hour is $9.50

And, the fixed overhead rate per hours is

=  budgeted fixed manufacturing overhead ÷ direct labor hours

= $130,980 ÷ 7,400

= $17.70

So, the predetermined overhead rate is

= $9.50 + $17.70

= $27.20

By adding the variable overhead rate per hour and the fixed overhead rate per hour we can find out the predetermined overhead rate

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