FENERBAHCE Company expects to incur $600,000 as overhead costs for the coming year-$200,000 in Department A and $400,000

FENERBAHCE Company expects to incur $600,000 as overhead costs for the coming year-$200,000 in Department A and $400,000 in Department B. Predetermined overhead rates will be based on machine hours and direct labour hours for Department A and Department B, respectively. The Department A expects to use 20,000 machine hours, and the Department B plans to utilize 40,000 hours of direct labor for the year. At the end of the year, Department A used 22,000 machine hours while Department B needed only 35,000 direct labour hours. In addition, Actual overhead costs incurred by the departments are $218,000 for Department A and $353,000 for Department B. Required:

i) Please calculate predetermined overhead rates for the departments.

ii) Please calculate the amounts of underapplied or overapplied overhead costs for the departments.

Expert Solution

i) Calculation of predetermined overhead rates for the departments.rn
Predetermined overhead rate - Department Arn
= $200,000 / 20,000 machine hoursrn
= $10 per machine hourrn
Predetermined overhead rate - Department Brn
= $400,000 / 40,000 direct labor hoursrn
= $10 per direct labor hourrn

Explanationrn
Formula for calculating predetermined overhead ratern
= Estimated total overhead costs / Estimated activity in allocation basern

ii) Calculation of underapplied or overapplied overhead costs for the departments.rn
Department A:rn
Actual overhead cost = $218,000rn
Budgeted overhead cost = $10*22,000 machine hours = $220,000rn
Underapplied overhead costrn
= $220,000 - $218,000rn
= $2,000rn
Department B:rn
Actual overhead cost = $353,000rn
Budgeted overhead cost = $10*35,000 machine hours = $350,000rn
Overapplied overhead costrn
= $353,000 - $350,000rn
= $3,000rn
Explanationrn
Formula for underapplied overhead cost = Budgeted overhead - Actual Overheadrn
Formula for overapplied cost = Actual overhead - Budgeted Overhead

i. Predetermined overhead rate = $10 per direct labor hourrn

Junaid answered 2 years ago

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