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The following data pertain to the Oneida Restaurant Supply Company for the year just ended.

Budgeted sales revenue $205,000
Actual manufacturing overhead 336,000
Budgeted machine hours (based on practical capacity) 8,000
Budgeted direct-labor hours (based on practical capacity) 20,000
Budgeted direct-labor rate $14
Budgeted manufacturing overhead $364,000
Actual machine hours 11,000
Actual direct-labor hours 18,000
Actual direct-labor rate $15


Required:
a. Compute the firm's predetermined overhead rate for the year using each of the following common cost drivers: (a) machine hours, (b) direct-labor hours, and (c) direct-labor dollars.
b. Calculate the over-applied or under-applied overhead for the year using each of the cost drivers listed above.

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Tundexi

Answer:

Predetermined overhead rate = Budgeted manufacturing rate/Allocation base

a. Machine hours

= 364,000 / 8,000

= $45.5

Predetermined overhead rate = $45.5

Direct-labor hours

= 364,000 / 20,000

= $18.2

Predetermined overhead rate = $18.2

Direct-labor dollars

Budgeted labor hours = 20,000 * $14 = $280,000

Predetermined overhead rate =  364,000 / $280,000 = $1.3

b. Machine hours

Manufacturing overhead applied = Actual machine hours * Predetermined overhead rate = $45.5 * 11,000 = $500,500

Over/Under applied overhead = 336,000 - 500,500

Over-applied overhead = $164,500

Direct-labor hours

Manufacturing overhead applied = Actual direct-labor hours * Predetermined overhead rate = $18.2 * 18,000 = $327,600

Over/Under applied overhead = 336,000 - 327,600

Under-applied overhead = $8400

Direct-labor dollars

Manufacturing overhead applied = Actual direct-labor hours * Actual direct-labor rate * Predetermined overhead rate

Manufacturing overhead applied = 18,000 * $15 * $1.3 = 351,000

Over/Under applied overhead = 336,000 - 351,000

Over-applied overhead = $15,000
  • The calculation is as follows:

we know that

Predetermined overhead rate = Budgeted manufacturing rate ÷ Allocation base

a. Machine hours

= 364,000 ÷8,000

= $45.5

Predetermined overhead rate = $45.5

Direct-labor hours

= 364,000 ÷ 20,000

= $18.2

Predetermined overhead rate = $18.2

Direct-labor dollars

Budgeted labor hours = 20,000 × $14 = $280,000

Predetermined overhead rate =  364,000 ÷ $280,000 = $1.3

b. Machine hours

Manufacturing overhead applied = Actual machine hours × Predetermined overhead rate

= $45.5 × 11,000

= $500,500

So,

Over/Under applied overhead = 336,000 - 500,500

Over-applied overhead = $164,500

Direct-labor hours

Manufacturing overhead applied = Actual direct-labor hours × Predetermined overhead rate

= $18.2 × 18,000

= $327,600

Over/Under applied overhead = 336,000 - 327,600

Under-applied overhead = $8400

Direct-labor dollars

Manufacturing overhead applied = Actual direct-labor hours × Actual direct-labor rate × Predetermined overhead rate

= 18,000 × $15 × $1.3

= 351,000

Over/Under applied overhead = 336,000 - 351,000

Over-applied overhead = $15,000

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