Over and Underabsorbed Overhead
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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.
Required:
a. How much overhead is allocated?
b. What is the over/underabsorbed overhead?
I went ahead and broke out the details of Alphonse below. I've seen some work on this by another, but I'm not able to follow the work to understand how this is done. Can anyone help me follow the trail so I can actually understand how this one works? At this point I don't see the logic used to arrive a.) and b.). I'm not convinced that what I came across was actually correct.
Expected Fixed Overhead: $600,000
Expected Variable Overhead: $800,000
Expected Machine Hours: 6,000
Expected Direct Labor Hours: 80,000
Actual Fixed Overhead: $700,000
Actual Variable Overhead: $750,000
Actual Machine Hours: 5,500
Actual Direct Labor Hours: 90,000.
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Solution Summary
The solution discusses over and underabsorbed overhead.
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a. In order to calculate the overhead allocated, we first calculate the predetermined overhead rate
Overhead allocated = predetermined overhead rate X actual hours
The predetermined overhead rate is calculated based on the estimated cost and estimated hours
For Fixed overhead
Predetermined overhead rate = Estimated fixed ...
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