Byrd Company produces one product, a putter called GO-Putter. Byrd uses a standa

Question

Byrd Company produces one product, a putter called GO-Putter. Byrd uses a standard cost system and determines that it should take one hour of direct labor to produce one GO-Putter. The normal production capacity for this putter is 105,000 units per year. The total budgeted overhead at normal capacity is $525,000 comprised of $210,000 of variable costs and $315,000 of fixed costs. Byrd applies overhead on the basis of direct labor hours. During the current year, Byrd produced 82,100 putters, worked 97,700 direct labor hours, and incurred variable overhead costs of $109,604 and fixed overhead costs of $360,876. Compute the predetermined variable overhead rate and the predetermined fixed overhead rate.

Explanation / Answer

Predetermined Variable overhead rate = Estimated amount of manufacturing overhead / Estimated allocation base for the period

= 210000/ 105000 = $2 per labour hour

Predetermined Fixed overhead rate = Estimated amount of overhead / Total units produced

= 315000 / 105000

= $3 per unit

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