The following data pertain to the Aquarius Hotel Supply Company for the year just ended.
Given:
Budgeted sales revenue $ 945,000
Budgeted manufacturing overhead 650,000
Budgeted machine hours 20,000
Budgeted direct-labor hours 25,000
Budgeted direct-labor rate per hour 13
Actual manufacturing overhead 690,000
Actual machine hours 22,000
Actual direct-labor hours 26,000
Actual direct-labor rate per hour 14
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Solve:
Compute the firm's predetermined overhead rate for the year using each of the following common cost drivers.
Overhead rate per hour:
Machine hours $__32.5__ /machine hour
Direct-labor hours $__26__ /direct-labour hour
Direct-labor dollars $___________ /direct-labour dollar
Calculate the overapplied or underapplied overhead for the year using each of the cost drivers.
Overhead rate per hour:
Machine hours: $______________Overapplied overhead
Direct-labor hours: $____________Underapplied overhead
Direct-labor dollars: $______________Overapplied overhead
Why isn't the direct labor dollars predetermined overhead rate calculated the same way as the other two?
I'd appreciate the formula for filling in the rest of the blanks.
Thank you so much.
Answers & Comments
Verified answer
The theory between applied and actual is that you apply a standard to the production and you measure against the actual to see if your standards are accurate and if your model is efficient.
In this case as I recall the cost accounting book sometimes refers to the budget as the standard since the standard is generally derived from the budget.
Machine hours is used to measure machine effficiency and labor hours is used to measure labor efficiency. Labor dollars calculates both a rate variance and an efficiency variance. These different types of variances methods used to apply cost to the inventory.
To solve your problem take the Actual dr - Standard (budget) cr = Variance
-Overapplied and +Underapplied
The over or underapplied is Actual OH - Budgeted OH = $40k underapplied
Hours Variance x budget rate = Over or Under Applied
(22000-20000) x (650000/20000) machine basis
(26000-25000) x (650000/25000) labor basis
Dollars Variance x actual hours = Over or Under Applied
(14-13) x 26000
Calculated
Hours Variance x budget rate = Over or Under Applied
(22000-20000) x (650000/20000) machine basis 2000x 32.5= 65000
(26000-25000) x (650000/25000) labor basis 1000x 26= 26000
Dollars Variance x actual hours = Over or Under Applied
(14-13) x 26000 = 26000
The difference to the $40k should be Factory Burden applied. But I need to check these and I can't locate an exact source.
Still looking...
jones company applies overhead based on direct labor hours, at the beginning of the year jones estimates overhead to be 480,000 dollars, machine hours to be 120,000, and direct labor hours to be 80,000. during january jones has 6,700 direct labor hours and 11,000 machine hours. refer to figure 5-1. if the actual overhead for january is 41,000 dollars what is the overhead variance and is it over applied or underapplied
What?? I have the same question and seen clear answer to what you have stated.