B is corrent. The variable portion of the factory overhead rate can be computed by dividing variable factory overhead (at maximum capacity) by direct manufacturing labor hours (at maximum capacity).
$150,000/60,000 = $2.50
Note that the variable overhead rate is constant over the relevant range of activity. Since total fixed overhead is constant over the relevant range, the budgeted fixed overhead is divided by direct manufacturing labor hours at 80% of maximum capacity, or 48,000 hours (60,000 × 80%).
$240,000/48,000 = $5.00
The total factory overhead rate is $2.50 plus $5.00, or $7.50 per direct manufacturing labor hour.
A is incorrect. The total factory overhead rate is equal to $7.50.
C is incorrect. The total factory overhead rate is equal to $7.50.
D is incorrect. The total factory overhead rate is equal to $7.50.
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