Morton Company’s variable manufacturing overhead should be $4.50 per standard direct labor-hour and fixed manufacturing should be $270,000 per year.
The company manufactures a single product that requires two direct labor-hours to complete. The direct labor wage rate is $15 per hour. Four feet of raw material are required for each unit of product; the standard cost of the material is $8.75 per foot.
Although normal activity is 30,000 direct labor-hours each year, the company expects to operate at a 40,000-hour level of activity this year.
Assume that the company chooses 30,000 direct labor-hours as the denominator level of activity. Compute the predetermined overhead rate, breaking it down into variable and fixed cost elements.