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Thiel Boots: Overhead Rates & Over or Under Applied Overhead

Thiel Boots

Sales $1,000,000
Cost of goods sold
direct materials 300,000
direct labor 160,000
est.overhead 240,000 700,000
Gross profit 300,000
Selling and adm expenses 175,000
Net income $125,000

Expected to sell 10,000 pairs of boot
est. of production employees will work 10,000
production equipment to operate 8,000

A. Compute the predetermined overhead rate for Thiel using the following three cost drivers: direct labors hours,direct labor dollars, and machine hours.
B. If actual labor costs were $170,000 for 10,500 direct labor hours and actual machine hours used were 7,800, what would be the applied overhead, using the three predetermined overhead rates computed in part A?
C. Compute the amount of over- or underapplied overhead, assuming that actual over-head is $229,000. You should assume that overhead was applied as computed from B.

Solution Preview

Requirement A
Predetermined overhead rate = estimated overhead/cost driver
Direct labor hours:$240,000/10,000 hours = $24 per direct labor hour
Direct labor dollars: $240,000/$160,000 = $1.5 per direct ...

Solution Summary

This solution discusses overhead rates and over or under applied overhead for Thiel Boots.