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# Predetermined overhead variance, applied, unit cost

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7. Blue Company applies overhead based on direct labor hours. At the beginning of the year, Blue estimates overhead to be \$480,000, Machine hours to be 120,000, and Direct Labor to be 80,000. During January, Blue has 6700 direct labor hours and 11000 machine hours.

a. What is the predetermined overhead rate?
1. \$6 per direct labor hour
2. \$40,200
3. \$4 per machine hour
4. \$44,000
5. none of the above

b. What is the amount of overhead applied for January?

c. If the actual overhead for January is \$41,000, what is the overhead variance and is it overapplied or underapplied?

8. Brown has applied overhead of \$73000 and actual overhead of 87600 for the month of November. It applies overhead based on direct labor hours and those equaled 14600 in November. Overhead for the year was estimated to be \$900,000. How many direct labor hours were estimated for the year.

a. 175200
b. 180,000
c. \$5
d. 150,000
e. \$6

9. At the beginning of the year, Mona Inc estimated that overhead would be \$540,000 and direct labor hours would be 180,000. At the end of the year, actual overhead was \$616,000 and there were actually 205,200 direct labor hours.

a. What is the overhead variance?

b. What is the predetermined overhead rate?

10. Sanders Manufacturing has the following amounts listed before reconciling the overhead variance.

Cost of goods sold \$935,000

a. \$951,000
b. \$919,000
c. \$939,000
d. \$955,000
e. \$915,000

11. On February 1, Job 12 had a beginning balance of \$200. During February, direct materials of \$500 and direct labor of \$200 were added to the job. Overhead is applied to production at a rate of 55% of direct labor. There are 5 units in Job 12.

What is the unit cost?
a. \$22
b. \$20
c. \$28
d. \$50.54
e. none of these

12. Kratzer Company designs and builds fire trucks. During May it had applied overhead of \$105,000. Overhead is applied at the rate of 70% of direct labor cost. Direct labor wages average \$10 per hour.

How many direct labor hours did Kratzer Company have for the month of May?
a. 15,000
b. 10,500
c. 1,500,000
d. 4,500
e. none of these

#### Solution Preview

7. Blue Company applies overhead based on direct labor hours. At the beginning of the year, Blue estimates overhead to be \$480,000, Machine hours to be 120,000, and Direct Labor to be 80,000. During January, Blue has 6700 direct labor hours and 11000 machine hours.

a. What is the predetermined overhead rate?
predetermined overhead rate = 480000/80000=\$6.00 per direct labor hour
Answer: 1. \$6 per direct labor hour

b. What is the amount of overhead applied for January?
=\$6*6700=\$40,200

c. If the actual overhead for January is \$41,000, what is the overhead variance and is it overapplied or underapplied?
=41000-40200=800
Since it is positive value, the overhead is under applied.

8. Brown has ...

#### Solution Summary

This post has multiple queries. It shows how to calculate the predetermined overhead rate, overhead variance, applied, direct labor hours estimated and variance, unit cost

\$2.19
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## Madden Manufacturing, Inc: Factory overhead, under and over applied costs, variances

From Principles of Cost Accounting - 15th Edition - VanDerbeck

Madden Manufacturing, Inc., manufactures a single product and uses a standard cost system. The factory overhead is applied on the basis of direct labor hours. A condensed version of the company's flexible budget follows:

Direct labor hours 5,000 6,250 10,000
Variable Costs \$10,000 \$12,500 \$20,000
Fixed Costs 50,000 50,000 50,000
Total \$60,000 \$62,500 \$70,000

The product requires 3 pounds of materials at a standard cost of \$5 per pound and 2 hours of direct labor at a standard cost of \$10 per hour.

For the current year, the company planned to operate at the level of 6,250 direct labor hours and to produce 3,125 units of product. Actual production and costs for the year follow:

Number of units produced 3,500
Actual direct labor hours worked 7,000
Actual variable overhead costs incurred \$14,000
Actual fixed overhead costs incurred \$52,000

Required:
1. For the current year, compute the factory overhead rate that will be used for production. Show the variable and fixed components that make up the total predetermined rate to be used.
2. Prepare a standard cost card for the product. Show the individual elements of the overhead rate as well as the total rate.
3. Compute (a) standard hours allowed for production and (b) under- or over-applied factory overhead for the year.
4. Determine the reason for any under or over-applied factory overhead for the year by computing all variances, using each of the following methods:
a. Two-variance method
b. Three-variance method
c. Four-variance method

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