Chapter 8, Problem 5E

To determine

Concept Introduction:

Budgets:

Budgets are prepared to estimate the revenue, costs, receipts and payments for the business. There are several types of budgets prepared for a manufacturing concern. Few major types of budgets prepared by each manufacturing concert are as follows:

1. Sales budget
2. Cash Collection budget
3. Production budget
4. Raw material purchase budget
5. Expenses Budgets
6. Cash disbursement budget

Manufacturing Overhead Budget:

The Manufacturing overheads budget is the of expenses budgets. Manufacturing overhead is calculated using the predetermined overhead rates.

Predetermined Overhead allocation rate:

The Predetermined Overhead allocation rate is used to allocate the manufacturing overhead over the jobs. Predetermined Overhead allocation rate is calculated by dividing the Total Estimated overhead cost by the Total Estimated allocation base.

The formula to calculate the Predetermined Overhead allocation rate is as follows:

  $PredeterminedOverheadallocationrate=\frac{TotalEstimatedoverheadcost}{TotalEstimatedallocationbase}$

Requirement-1:

To prepare:

The Manufacturing overhead budget for the upcoming fiscal year

To determine

Requirement-2:

The predetermined overhead rate for the upcoming fiscal year