The following information was extracted from the accounting records of Williams

ID: 2562393 • Letter: T

Question

The following information was extracted from the accounting records of Williams Company:

Standard cost data for product X

Direct Materials - 5 pounds of material Y at $10/pound

Direct Labor - 3 hours of direct labor at $20/hour

Overhead - ?

Flexible budget for total overhead for the year

$300,000 of fixed costs plus $4 per direct labor hour

Number of units of product X to be produced during the year

10,000 units

Actual total overhead for August

$34,000

Direct labor hours worked in August

2,600

Number of units of product X produced during August

917

a) The standard predetermined overhead rate is

b) The amount of over/under applied overhead using standard costing would be

Number of units to be produced during the year = 10,000

Standard direct labor hours per unit = 3

Therefore,

Budget direct labor hours for 10,000 units = 10,000 x 3 = 30,000 direct labor hours

Flexible budget for total overhead for the year = $300,000 of fixed costs plus $4 per direct labor hour

Therefore,

Standard predetermined overhead rate = ($300,000/30,000) + $4 = $14 per direct labor hour

Actual total overhead for August = $34,000

Overhead applied

= Actual direct labor hours worked in August x Standard predetermined overhead rate

= 2,600 x $14

= $36,400

Since the amount of overhead applied is greater than actual overhead for August, overhead has been over applied.

Amount of overapplied overhead = $36,400 - $34,000 = $2,400

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