Bakos Corporation bases its predetermined overhead rate on variable manufacturing overhead cost of $8.80 per machine-hour and fixed manufacturing overhead cost of $100,688 per period. If the denominator level of activity is 2,800 machine-hours, the variable component in the predetermined overhead rate would be:
A)$44.76
B)$35.96
C)$43.52
D)$8.80

Question

Quizplus · Accepted Answer

The predetermined overhead rate formula is:

Predetermined Overhead Rate = (Variable manufacturing overhead cost + Fixed manufacturing overhead cost) / Denominator level of activity

Substituting the given values:

Predetermined Overhead Rate = ($8.80 per machine-hour x Denominator level of activity) + $100,688) / 2,800 machine-hours

Predetermined Overhead Rate = ($24,640 + $100,688) / 2,800 machine-hours

Predetermined Overhead Rate = $125,328 / 2,800 machine-hours

Predetermined Overhead Rate = $44.76 per machine-hour

Therefore, the variable component in the predetermined overhead rate is $8.80 (option D).

Bakos Corporation Bases Its Predetermined Overhead Rate on Variable Manufacturing