Rick's Bags manufactures both golf bags and tennis totes. Fixed manufacturing overhead is budgeted to be $187,200, variable manufacturing overhead is budgeted to be $1.10 per direct labor hour, and fixed selling and administration costs are budgeted to be $346,000. Each golf bag is expected to use 2.5 direct labor hours and each tennis tote is expected to use 1.8 direct labor hours. Planned production consists of 12,000 golf bags and 18,000 tennis totes.
During the year, 34,060 direct labor hours are used to make golf bags and 16,250 direct labor hours are used to make tennis totes. Manufacturing overhead incurred during the year was $207,500. Overhead is absorbed into products using actual direct labor hours.
a. Calculate the manufacturing overhead rate used to absorb overhead to golf bags and tennis totes.
b. A batch of tennis totes is produced in May. The batch uses 1,900 direct labor hours. How much overhead is charged to this batch of tennis totes?
c. Calculate the amount of over/under-absorbed overhead at the end of the year.
d. Describe in nontechnical terms what the over/under-absorbed overhead calculated in part (c) means.
The solution explains the calculation of overhead rate, applied overhead and under or over applied overhead