At the beginning of the year, Gaudi Company estimated the following: Overhead: $

Question

At the beginning of the year, Gaudi Company estimated the following:

Overhead: $432, 000

Direct Labor Hours: 90, 000

Gaudi uses normal costing and applies overhead on the basis of direct labor hours. For the month of January, direct labor hours were 7, 650. By the end of the year, Gaudi showed the following actual amounts:

Overhead: $436, 000

Direct labor hours: 89, 600

Assume the unadjusted Cost of Goods Sold for Gaudi was $707, 000

1. Calculate the predetermined overhead rate for Gaudi.

2. Calculate the overhead applied to production for January.

3. Calculate the total applied overhead for the year. Was overhead over- or underapplied? By how much?

4. Calculate adjusted Cost of Goods Sold after adjusting the overhead variance.

Explanation / Answer

Hi,

Please find the answer as follows:

Part A = 432000/90000 = $ 4.8 per labor hour

Part B = Overhead Applied = 4.8*89600 = 430080

Part C = Actual Overheads - Applied Overheads = 436000 - 430080 = 5920 underapplied

Part D = 707000 + 5920 = 712920

Thanks.

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