Question

Applied manufacturing overheads are overheads allocated to the production process according to a tariff, based on the budgeted overheads and expected capacity utilization. The following is the budget of a car manufacturing company XYD:

	Total	Per unit
Budgeted production (units)	1500
Budgeted direct material cost	R20 000	R14.00
Budgeted direct labor cost	R45 000	R30.00
Budgeted manufacturing overheads	R12 000
Fixed variable	R8 000 R 4 000
Budgeted direct labor hours	4 000	3
Budgeted machine hours	3000	2

Answer the following question based on the given information. (Round off your answer the nearest whole number)

What is the predetermined overhead rate according to the primary cost basis?

Select one:

a. 55% of primary costs

b. 60% of material costs

c. 100% of primary costs

d. None of the options are correct

Answer 1

Budgeted manufacturing overheads = R12,000

Budgeted direct material cost = R20,000

from this, we can see Budgeted overheads are 60% of the material cost

Budgeted Primary costs is R20,000+R45,000=R65,000 and budgeted Overhead is only (12000/65000)x100=18.5%

so the answe is b. 60% of material costs