Predetermined Overhead Rate; Various Cost Drivers
The following data pertain to the Oneida Restaurant Supply Company for the year just ended.

Budgeted sales revenue$205,000
Actual manufacturing overhead340,000
Budgeted machine hours (based on practical capacity)10,000
Budgeted direct-labor hours (based on practical capacity) 20,0020,000
Budgeted direct-labor rate$14
Budgeted manufacturing overhead$364,000
Actual machine hours11,000
Actual direct-labor hours18,000
Actual direct-labor rate$15

Required:
a. Compute the firm's predetermined overhead rate for the year using each of the following common cost drivers: (a) machine hours, (b) direct-labor hours, and (c) direct-labor dollars.
b. Calculate the overapplied or underapplied overhead for the year using each of the cost drivers listed above

Instructions are listed below.

Explanation:

Giving the following information:

Actual manufacturing overhead= $340,000

Budgeted machine hours= 10,000

Budgeted direct-labor hours= 20,000

Budgeted direct-labor rate= $14

Budgeted manufacturing overhead= $364,000

Actual machine hours= 11,000

Actual direct-labor hours= 18,000

Actual direct-labor rate= $15

First, we need to calculate the predetermined overhead rate for each cost driver:

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Machine-hours:

Estimated manufacturing overhead rate= 364,000/10,000= $36.4 per machine hour

Direct-labor hours:

Estimated manufacturing overhead rate= 364,000/20,000= $18.2 per direct labor hours

Direct-labor dollars:

Estimated manufacturing overhead rate= 364,000/(20,000*14)= $1.3 per direct labor dollar

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Machine-hours:

Allocated MOH= 36.4*11,000= $400,400

Direct-labor hours:

Allocated MOH= 18.2*18,000= $327,600

Direct-labor dollars:

Allocated MOH= 1.3*(18,000*15)= $351,000

Finally, we can determine the over/under allocation:

Over/under allocation= real MOH - allocated MOH

Direct-machine hours:

Over/under allocation= 340,000 - 400,400= $60,400 overallocated.

Direct-labor hours:

Over/under allocation= 340,000 - 327,600= $12,400 underallocated.

Direct-labor dollars:

Over/under allocation= 340,000 - 351,000= $11,000 overallocated

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