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:
A)11,000 direct labor-hours
B)22,500 direct labor-hours
C)6,500 direct labor-hours
D)2,000 direct labor-hours

Question

Quizplus · Accepted Answer

To find the budgeted direct labor-hours, subtract the non-cash factory depreciation from the total cash disbursements, then divide by the variable overhead rate. $90,000 - $18,000 = $72,000. Then, $72,000 / $4.00 per hour = 18,000 direct labor-hours. However, this doesn't match any option, so re-evaluate: $72,000 / $4.00 = 18,000 direct labor-hours. Add fixed overhead excluding depreciation: $64,000 - $18,000 = $46,000. $46,000 + (18,000 * $4) = $118,000. Re-evaluate: $90,000 - $46,000 = $44,000. $44,000 / $4 = 11,000 direct labor-hours.

The Covey Corporation Is Preparing Its Manufacturing Overhead Budget for the Fourth