So, as an example, our direct labor cost per hour is $20 (as you remember from our direct labor budget). We an now add the $11 per hour manufacturing overhead to each hour worked as we price our products. This is a helpful calculation to spread out those costs that we cannot directly tie to a given product.

Manufacturing Overhead Budget Manufacturing overhead includes all the costs of production other than labor and raw materials. So let's assume our variable manufacturing overhead to be $3 per labor hour. Let's further assume our monthly fixed manufacturing overhead is $2050 per month. So, included in our fixed overhead is $500 of depreciation. Remember depreciation is not a cash outlay, so we can deduct it from our total manufacturing overhead for cash purposes! Complete the following table and calculate the Total OH cost for Q1 and Q2 Mafg, OH Budget Budgeted direct labor hours 1,025 Variabl OH Rate 3 Variable manufacturing overhead 3,075 Fixed manufacturing overhead 2,050 2,050 2,050 2,050 8,200 Total OH Cost 11,275 3 3 3 11 A. Total Annual manufacturing overhead ? B. Annual Budgeted direct labor hours 1,025 Predetermined overhead rate for the year -A/B So if you look at our previous budget for direct labor, the hours shown here on our manufacturing overhead budget come directly from that budget! The variable manufacturing overhead total is simply the hours multiplied by the rate. We now have the information needed to continue moving forward in our budgeting process! We also calculated our predetermined overhead rate for the year. Since manufacturing overhead is an indirect cost, we can't assign it to a particular product or job. Because we are using our direct labor hours as our allocation base, dividing the entire manufacturing overhead by the direct hours, gives us a dollar amount we can use, as an addition to the direct labor cost, for each hour worked. $2,725 and $2,800 $2,850 and $2,900 $2,800 and $2,800 O $2,800 and $2,950 Manufacturing Overhead Budget Manufacturing overhead includes all the costs of production other than labor and raw materials. So let's assume our variable manufacturing overhead to be $3 per labor hour. Let's further assume our monthly fixed manufacturing overhead is $2050 per month. So, included in our fixed overhead is $500 of depreciation. Remember depreciation is not a cash outlay, so we can deduct it from our total manufacturing overhead for cash purposes! Complete the following table and calculate the Total OH cost for Q1 and Q2 Mafg, OH Budget Budgeted direct labor hours 1,025 Variabl OH Rate 3 Variable manufacturing overhead 3,075 Fixed manufacturing overhead 2,050 2,050 2,050 2,050 8,200 Total OH Cost 11,275 3 3 3 11 A. Total Annual manufacturing overhead ? B. Annual Budgeted direct labor hours 1,025 Predetermined overhead rate for the year -A/B So if you look at our previous budget for direct labor, the hours shown here on our manufacturing overhead budget come directly from that budget! The variable manufacturing overhead total is simply the hours multiplied by the rate. We now have the information needed to continue moving forward in our budgeting process! We also calculated our predetermined overhead rate for the year. Since manufacturing overhead is an indirect cost, we can't assign it to a particular product or job. Because we are using our direct labor hours as our allocation base, dividing the entire manufacturing overhead by the direct hours, gives us a dollar amount we can use, as an addition to the direct labor cost, for each hour worked. $2,725 and $2,800 $2,850 and $2,900 $2,800 and $2,800 O $2,800 and $2,950