Question

Alberton Electronics makes inexpensive GPS navigation devices and uses a normal cost system that applies overhead based on machine hours. The following current year budgeted data are available:

Variable factory overhead at 100,000 machine hours $2,750,000
Variable factory overhead at 150,000 machine hours 4,125,000

Fixed factory overhead at all levels between 10,000 and 180,000 machine hours 3,168,000
Practical capacity is 180,000 machine hours; expected capacity is two-thirds of practical.

Required:
a. What is Alberton Electronics’ predetermined VOH rate?
b. What is the predetermined FOH rate using practical capacity?
c. What is the predetermined FOH rate using expected capacity?
d. During 2013, the firm records 110,000 machine hours and $2,710,000 of overhead costs. How much variable overhead is applied? How much fixed overhead is applied using the rate found in (b)? How much fixed overhead is applied using the rate found in (c)? Calculate the total under- or overapplied overhead for 2013 using both fixed OH rates.

Answer 1

Answer:

Alberton Electronics

a. Alberton Electronics' predetermined VOH rate = $27.50 ($1,375,000/50,000)

b. The predetermined FOH rate using practical capacity = $17.60 ($3,168,000/180,000)

c. The predetermined FOH rate using expected capacity = $26.40 ($3,168,000/120,000)

d. Variable overhead applied = $3,025,000 (110,000 * $27.50)

Fixed overhead applied using $17.60 FOH rate = $1,936,000 (110,000 * $17.60)

Fixed overhead applied using $26.40 FOB rate = $2,904,000 (110,000 * $26.40)

The Total under-or applied overhead for 2013:

a) Overapplied overhead = $2,251,000 ($4,961,000 - $2,710,000)

b) Overapplied overhead = $3,219,000

Explanation:

a) Data and Calculations:

Variable factory overhead at 100,000 machine hours $2,750,000

Variable factory overhead at 150,000 machine hours 4,125,000

Difference = 50,000 machine hours and $1,375,000

Variable overhead rate = $1,375,000/50,000 = $27.50

Fixed factory overhead between 10,000 and 180,000 machine hours = $3,168,000

Practical capacity = 180,000

Expected capacity = 120,000 (180,000 * 2/3)

a. Alberton Electronics' predetermined VOH rate = $27.50 ($1,375,000/50,000)

b. The predetermined FOH rate using practical capacity = $17.60 ($3,168,000/180,000)

c. The predetermined FOH rate using expected capacity = $26.40 ($3,168,000/120,000)

d. Variable overhead applied = $3,025,000 (110,000 * $27.50)

Fixed overhead applied using $17.60 FOH rate = $1,936,000 (110,000 * $17.60)

Fixed overhead applied using $26.40 FOB rate = $2,904,000 (110,000 * $26.40)

The Total under-or applied overhead for 2013:

a) Total overhead applied = $4,961,000 ($3,025,000 + $1,936,000)

Overapplied overhead = $2,251,000 ($4,961,000 - $2,710,000)

b) Total overhead applied = $5,929,000 ($3,025,000 + $2,904,000)

Overapplied overhead = $3,219,000 ($5,929,000 - $2,710,000)