Verstraten Company uses normal costing. It allocates manufacturing overhead cost
ID: 2340912 • Letter: V
Question
Verstraten Company uses normal costing. It allocates manufacturing overhead costs using a budgeted rate per machine-hour. The following data are available for 2017:
Budgeted manufacturing overhead costs
$3,950,000
Budgeted machine-hours
197,500
Actual manufacturing overhead costs
$3,790,000
Actual machine-hours
191,500
1.
Calculate the budgeted manufacturing overhead rate.
2.
Calculate the manufacturing overhead allocated during 2017.
3.
Calculate the amount of under- or overallocated manufacturing overhead. Why do Verstraten's managers need to calculate thisamount?
1.
Calculate the budgeted manufacturing overhead rate.
2.
Calculate the manufacturing overhead allocated during 2017.
3.
Calculate the amount of under- or overallocated manufacturing overhead. Why do Verstraten's managers need to calculate thisamount?
Explanation / Answer
1. Budgeted manufacturing Overhead rate = Budgeted Overhead/Budgeted MAchine hour
= 3950000/197500
= 20per machine hour
2. Allocated Overhead = Budgeted rate*Actual MAchine hours
= 20*191500
= 3830000
3.Over absorption = 3830000-3790000
= 40000
because absorbed overhead are more then actual overhead.
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