The Alphonse Company allocates fixed overhead costs by machine hours and variable overhead costs by direct labor hours. At the beginning of the year the company expects fixed overhead costs to be $600,000 and variable costs to be $800,000. The expected machine hours are 6,000 and the expected direct labor hours are 80,000. The actual fixed overhead costs are $700,000 and the actual variable overhead costs are $750,000. The actual machine hours during the year are 5,500 and the actual direct labor hours are 90,000.
a. How much overhead is allocated?
b. What is the over/under-absorbed overhead?
First we need to calculate the predetermined overhead rate based on budgeted figures.
Predetermined Fixed Overhead rate = Expected overhead cost/machine ...
The solution computes over/under-absorbed overhead for Alphonse Company.