Question

Snyder Stampings allocates overhead to products based on machine hours. It uses a flexible overhead budget to calculate a predetermined overhead rate at the beginning of the year. This rate is used during the year to allocate overhead to the various stampings produced. The following table summarizes operations for the last year:

Budgeted fixed overhead                                $ 3,800,000

Over-absorbed overhead variance                      $ 220,000

Actual machine hours                                            46,000

Variable overhead per machine hour                        $ 100

Actual overhead incurred                               $ 8,750,000

Required:

In setting the overhead rate at the beginning of the year, what budgeted volume of machine hours was used?

Answer 1

Final Answer:	Budgeted volume of machine hours was used	40,000	Machine hours
	Working Note :
	Calculate applied overhead
	Actual Overhead	8,750,000
	Add: Overapplied Overhead Variance	220,000
	Overhead absorbed	8,970,000
	Divided by no. of actual hours	46,000
	Predetermined overhead rate(Total)	195	per machine hour
	Less: Variable overhead	(100)	per machine hour
	Predetermined overhead rate(Fixed)	95
	Predetermined overhead rate(Fixed) = Estimated Budgdted fixed overhead / Estimated machine hours
	Estimated machine hours = 3800000/95
	40,000	Machine hours