Question

Producto Corp. is preparing its overhead budget. Budgeted fixed overhead amounts to $1,620,000. Budgeted variable overhead rate is $10 per direct labor hour. The company estimates 20,000 direct labor hours and direct labor cost of $925,000.

Producto's total overhead budget is:

a.$2,500,000. b.$1,820,000. c.$1,600,000. d.$2,475,000.

Please show work and include explanations. Thank you!

Answer 1

Budgeted fixed overhead = $1,620,000

Budgeted variable overhead rate = $10 per direct labor hour

Budgeted direct labor hour = 20,000

Budgeted direct labor cost = $925,000

Budgeted variable overhead = Budgeted direct labor hour x Budgeted variable overhead rate

= 20,000 x 10

= $200,000

Overhead budget

Budgeted variable overhead	200,000
Budgeted fixed overhead	1,620,000
Total budgeted overhead	$1,820,000

Correct option is (b)

Since it is overhead budget, hence direct labor cost is not needed to prepare it.