E11-12 Bynd Company produccs one product, a putter called GO-Putter. Byrd uses a
ID: 2575581 • Letter: E
Question
E11-12 Bynd Company produccs one product, a putter called GO-Putter. Byrd uses a stan dard cost system and determines that it should take one hour of direct labor to produce one GO-Putter. The nomal production capacity for this putter is 100,000 units per year: The total budgeted overhead at normal capacity is $850,000 comprised of $250,000 of variable costs and $600,000 of fixed costs. Byrd applics overhead on the basis of direct labor hours. During the currentycar, Byrd produced 95,000 putters, worked 94,000 direct labor hours, and incurred variable overhead costs of $256,000 and fixed overhead costs of $600,000. Instructions (a) Compute the predetermined variable overhcad rate and the predetermined fixed over head rate. (b) Compute the applied overhead for Byrd for the year (c) Compute the total overhcad variance.Explanation / Answer
Byrd Company
Computation of the predetermined variable overhead rate and the predetermined fixed overhead rate:
Predetermined variable overhead rate = Budgeted variable costs/budgeted direct labor hours
Budgeted variable cost = $250,000
Budgeted direct labor hours = normal production in units x number of hours per unit
Normal production in units = 100,000
Number of hours per unit = 1hour
Budgeted direct labor hours = 100,000 x 1 hour = 100,000 hours
Predetermined variable overhead rate= $250,000/100,000 = $2.50 per hour
Computation of predetermined fixed overhead rate:
Predetermined fixed overhead rate = budgeted fixed overhead/budgeted direct labor hours
Budgeted fixed overhead cost = $600,000
Budgeted direct labor hours = 100,000 (calculated above)
Predetermined fixed overhead rate per hour = $600,000/100,000 = $6
Hence, predetermined variable overhead rate = $2.50 per hour and predetermined fixed overhead rate = $6 per hour.
Hence, predetermined overhead rate = $2.50 + $6 = $8.50
Applied overhead for Byrd for the year 2017 is calculated as follows,
Overhead applied based on standard hours allowed for actual units of products produced
= predetermined overhead rate x number of units per hour x actual units produced
Predetermined overhead rate = $8.50
Number of units per hour = 1
Actual units produced = 94,000
Applied overhead for Byrd for the year 2017 = $8.50 x 1 x 94,000 = $799,000
Applied standard overhead for actual units produced – (Total variable overhead incurred + total fixed overhead incurred)
= $799,000 – ($256,000 + $600,000) = $57,000 UF
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