Kisler Incorporated makes a single product—a cooling coil used in commercial ref

Question

Kisler Incorporated makes a single product—a cooling coil used in commercial refrigerators. The company has a standard cost system in which it applies overhead to this product based on the standard machine-hours allowed for the actual output of the period. Data concerning the most recent year appear below:

Total budgeted manufacturing overhead $ 70,035 Budgeted production 15,000 units Standard hours per unit (b) 0.70 machine-hours Budgeted hours (a) × (b) 10,500 machine-hours Actual production (a) 14,000 units Standard hours per unit (b) 0.70 machine-hours Standard hours allowed for the actual production (a) × (b) 9,800 machine-hours Total actual manufacturing overhead $ 97,489
The predetermined overhead rate is closest to:

Explanation / Answer

Answer : 1)pre determined overhead rate is totally depends on estimations rather than the actuals

2) these manufacturing overheads are indirect costs associated with the product in the manufacturing overheads. These are depreciation on building and factory equipments and some salaries of factory employees , factory maintenance etc.

3) pre determined overhead rate is calculated with the following equation

= total budgeted manufacturing overhead cost / total budgeted machine hours

Total budgeted manufacturing overheads =$70,035 given

Total budgeted machine hours 10500 given

So

= $70,035/10500

=6.67

Pre determined overhead rate =6.67

Always pre determined overhead rate is calculated by using the budgeted information because ,it is related to the estimations rather than the actual.

Thank you

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