Question

Atlanta Company is preparing its manufacturing overhead budget for 2017. Relevant data consist of the following.

Units to be produced (by quarters): 10,000, 12,000, 14,000, 16,000.

Direct labor quantity standard is 1.5 direct labor hours per unit.

Variable overhead costs per direct labor hour total to $2.50.

Fixed overhead costs per quarter total to $62,000

Instructions

a. Prepare the manufacturing overhead budget for 2017 by quarters.

b.What is the pre-determined FOH rate based on direct labor hours?

c. How much fixed overhead will be applied in the first quarter?

Answer 1

Ans.(a)	Ajanta Company
	Manufacturing Overhead Budget
	For the year 2017
								Qtr.1	Qtr.2	Qtr.3	Qtr.4
	Units Produced							10000	12000	14000	16000
	Standard hours of direct labor hours per unit							1.5	1.5	1.5	1.5
	Total Standard hours of direct labor hours per unit manufactured							15000	18000	21000	24000
	Variable overhead cost per direct labor hours							$         2.50	$          2.50	$         2.50	$        2.50
	Total variable overhead cost							$    37,500	$     45,000	$    52,500	$    60,000
	Add: Fixed overhead cost per Quarter							62000	62000	62000	62000
	Total Manufacturing Overhead cost							$    99,500	$   107,000	$ 114,500	$ 122,000
Ans.(b)	Predetermined manufacturing overhead rate =					Total estimated manufacturing overhead costs / Total estimated direct labor cost
						Qtr.1	Qtr.2	Qtr.3	Qtr.4
	Total Manufacturing Overhead cost					$      99,500	$     107,000	$ 114,500	$   122,000
	/ Total Standard hours of direct labor hours per unit manufactured					15,000	18,000	21,000	24,000
	Pre-determined overhead rate					$           6.63	$            5.94	$         5.45	$          5.08
Ans.(c)	Fixed overhead applied =			Total fixed overhead cost in quarter 1 / Total units produced
	=			$62,000 / 10,000
	=			$6.20