The Alphonse Company allocates fixed overhead costs by machine hours and variabl

Question

The Alphonse Company allocates fixed overhead costs by machine hours and variable overhead costs by direct labor hours. At the beginning of the year te company expects fixed overhead costs to be $600,000 and variable costs to be $800,000. The expected machine hours are 6,000 and the expected direct labor hours are 80,000. The actual fixed overhead costs are $700,000 and the actual variable costs are $750,000. The actual machine hours during the year are 5,500 and the actual direct labor hours are 90,000. What is the over/underabsorbed overhead?

Explanation / Answer

According to the given information, Estimated fixed overhead cost (a) = $600,000 Estimated variable overhead cost (b) = $800,000 Estimated machine hours (c) = 6,000 Estimated labor hours (d) = 80,000 Actual fixed overhead cost (e) = $700,000 Actual variable overhead cost (f) = $750,000 Actual machine hours (g) = 5,500 Actual labor hours (h) = 90,000 Calculating the allocated overhead: First we will calculate the fixed overhead allocation rate. Fixed overhead allocation rate (i) = a/c = $600,000 / 6,000 = $100 Variable overhead allocation rate (j) = b / d = $800,000 / 80,000 = $10 Fixed overhead allocated (K) = g * i = 5,500 * $100 = $550,000 Variable overhead allocated (l) = h * j = 90,000 * $10 = $900,000 Total overhead allocated = Fixed overhead allocated + Variable overhead allocated = $550,000 + $900,000 = $1,450,000 Therefore, the total overhead allocated is $1,450,000

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