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    Calculations Around a Water Plant's Overhead

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    The Densain Water plant in Naples, Florida, bottles purified and flavored waters in a variety of sizes (20, 36, 48, and 64 ounces) for sale through vending machines and retail stores. Volume is measured as bottled ounces. The plant's annual budgeted fixed manufacturing overhead amounts to $1.8 million, and variable manufacturing overhead is projected at $0.005 per bottled ounce. Projected volume in the Naples plant next year is 200 million ounces. Actual volume for the year accumulated to 210 million ounces and total manufacturing overhead incurred (both fixed and variable) was $2.85 million.

    a. Calculate the Densain Naples plant overhead rate.
    b. How much overhead was absorbed to products in the Naples plant?
    c. Calculate the Densain Naples plant's over- or under-absorbed overhead.
    d. Describe the effect on income when the over- or under-absorbed overhead calculated in (c) is written off to cost of goods sold

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    Solution Summary

    The solution explains how to calculate the overhead rate, overhead applied, under or over applied overhead and the impact on the income statement in an attachment with step-by-step calculations.