Company assembles all of its products in the Assembly Department. Budgeted cost

Question

Company assembles all of its products in the Assembly Department. Budgeted cost for the operation of this department for the year have been set as follows: COMPANY Budget costs for Assembly Department: Variable costs: Direct materials $900,000 Direct labor 675,000 Utilities 45,000 Indirect labor 67,500 Supplies 22,500 Total variable costs 1,710,000 Fixed costs: Insurance 8,000 Supervisory Salaries 90,000 Depreciation 160,000 Equipment rental 42,000      Total fixed costs 300,000 Total budgeted costs $2,010,000 Budgeted direct labor-hours 75,000 Part 3: Actual activities and costs: Actual direct labor-hours worked 73,000 Standard direct labor-hours allowed 70,000 Actual variable manufacturing overhead cost incurred $124,100 Actual fixed manufacturing overhead cost incurred 301,600 Since the assembly work is done mostly by hand, operating activity in this department is best measured by direct labor-hours. The cost formulas used to develop the budgeted costs above are valid over a relevant range of 60,000 to 90,000 direct labor-hours per year. Required: 1. Prepare a manufacturing overhead flexible budget for the Assembly Department using increments      of 15,000 direct labor-hours. (The company does not include direct materials and direct labor      costs in the flexible budget.)
Company assembles all of its products in the Assembly Department. Budgeted cost for the operation of this department for the year have been set as follows: COMPANY Budget costs for Assembly Department: Variable costs: Direct materials $900,000 Direct labor 675,000 Utilities 45,000 Indirect labor 67,500 Supplies 22,500 Total variable costs 1,710,000 Fixed costs: Insurance 8,000 Supervisory Salaries 90,000 Depreciation 160,000 Equipment rental 42,000      Total fixed costs 300,000 Total budgeted costs $2,010,000 Budgeted direct labor-hours 75,000 Part 3: Actual activities and costs: Actual direct labor-hours worked 73,000 Standard direct labor-hours allowed 70,000 Actual variable manufacturing overhead cost incurred $124,100 Actual fixed manufacturing overhead cost incurred 301,600 Since the assembly work is done mostly by hand, operating activity in this department is best measured by direct labor-hours. The cost formulas used to develop the budgeted costs above are valid over a relevant range of 60,000 to 90,000 direct labor-hours per year. Required: 1. Prepare a manufacturing overhead flexible budget for the Assembly Department using increments      of 15,000 direct labor-hours. (The company does not include direct materials and direct labor      costs in the flexible budget.)

Explanation / Answer

Overhead is a business's costs not related to direct inputs or administration.

Applied overhead is the management's budgeted amount of overhead for a specified period of time. Managers use applied overhead mainly in cost and managerial accounting.

By determining applied overhead costs, management can compare these costs with the actual costs incurred during the period. This is useful in finding problems associated with overhead application in a business.

The formula is:

applied overhead costs = budgeted annual rate x budgeted annual hours.

Definition and Explanation of Over and Under-applied Overhead:

Since the predetermined overhead rate is established before a period begins and is based entirely on estimated data, the overhead cost applied to work in process (WIP) will generally differ from the amount of overhead cost actually incurred during a period.

The difference between the overhead cost applied to work in process (WIP) and the actual overhead costs of a period is termed as either underapplied overhead or overapplied overhead. For example if a company calculates its predetermined overhead rate $6 per machine hour. 15,000 machine hours are actually worked and overhead applied to production is therefore $90,000 (15,000 hours

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