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Budgeted factory overhead for the Cutting Department is $310,000 and its budgeted direct labour hours are 2,000. What is the departmental overhead rate for Cutting?
A$236 per direct labour hour
B$182 per direct labour hour
C$124 per direct labour hour
D$155 per direct labour hour
Answer & Solution
Correct answer: D. $155 per direct labour hour
1. A departmental rate divides that department's own budgeted overhead by its own budgeted activity base.
2. Cutting has budgeted overhead of $310,000 and a budgeted base of 2,000 direct labour hours.
3. $310,000 divided by 2,000 hours gives $155 per direct labour hour.
4. $236 belongs to Assembly, whose $236,000 of overhead is spread over only 1,000 hours.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 4.3 Departmental Rates to Estimate Factory Overhead_
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