Question

In: Accounting

CHAMPIONManufacturing Company uses a normal costing system. The activity base for all overhead costs is direct...

CHAMPIONManufacturing Company uses a normal costing system. The activity base for all overhead costs is direct labor hours. All goods which were produced during the period were completed and sold during the period. Costs of manufacturing and non-manufacturing for the current period are:

Estimated

Actual

Fixed selling expenses

$200,000

250,000

Number of units produced           

1,000

1,800

Administrative expenses

$500,000

500,000

Direct labor                              

$128,000

240,000

Direct materials                          

$125,000

120,000

Direct labor hours                         

3,000

5,000

Indirect labor

$130,000

135,000

Indirect materials

$200,000

110,000

Other factory overhead

$100,000

350,000

Variable selling expenses           

$140,000

121,000

Required:

Calculate Pre-determined Overhead Rate,

Calculate Applied Manufacturing overhead (MOH),

Calculate the cost of 1 unit of the product (cost/unit),

Calculate Over/underapplied Manufacturing overhead

Solutions

Expert Solution

Answer 1

Calculation of Predetermined overhead rate

(A)

Estimated Overheads

$ 430,000.00

(B)

Estimated total Direct labor Hours

      3000

(A/B)

Predetermined overhead rate

$ 143.33

Predetermined overhead is calculated on Estimated or Budgeted Overhead cost and budgeted activity. In the given question Activity is Direct labor hours.

Answer 2

Calculation of Manufacturing overheads Applied

(A)

Predetermined overhead rate

$ 143.33

(B)

Actual Labor Hours

      5000

(A*B)

Applied Manufacturing Overheads

$ 716,666.67

Answer 3

Calculation of cost per Unit

Direct labor

$ 240,000.00

Direct material

$ 120,000.00

Manufacturing Overheads

Indirect labor

$ 135,000.00

Indirect material

$ 110,000.00

Other Factory Overheads

$ 350,000.00

(A)

Total Cost

$ 955,000.00

(B)

Units Produced

        1800

(A/B)

Cost per unit

$          530.56

Answer 4

When actual Overheads are lower than applied overheads it is called as Under-applied overheads and when actual overheads are lower greater than applied overheads then overheads are said to be Over-applied.

Actual Overheads

$   595,000.00

Applied Overheads

$ 716,666.67

Over-applies Overheads

$ 121,666.67

Since actual overheads are less than applied overheads it is called a situation of Over-applied overheads.

Working note 1

Calculation of Overheads

Budgeted

Actual

Indirect Labor

$     130,000.00

$ 135,000.00

Indirect material

$     200,000.00

$ 110,000.00

Other Factory Overheads

$     100,000.00

$ 350,000.00

Total Overheads to be applies

$     430,000.00

$ 595,000.00

Working note 2

Selling expense (Fixed as well as Variable) and Administration expense will not be a part of manufacturing cost of products.

ekkarill92 answered 1 year ago
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