The Densain Water plant pottles purified and favored waters in a variety of size

Question

The Densain Water plant pottles purified and favored waters in a variety of sizes (20, 36, 48, and 64 ounces) for sale thru vending machines and retail stores. Volume is measured as bottled ounces. The plant's annual budgeted fixed manufacturing overhead amounts to $1.8 million and variable manufacturing overhead is projected at $0.005 per bottled ounce . Projected volume in the plant next yeat is 200 million ounces. Actual volume for the year accumulated to 210 million ounces and total manufacturing overhead incurrec (both fixed and variable) was $2.85 million.
A) Calculate the Densian Naples plant overhead rate.
B) How much overhead was absorbed to products in the Naples plant?
C) Calculate the Densian Naples plant's over-or underabsorbed overhead.
D) Describe the effect on income when the over-or underabsorbed overhead calculated in (c) is written off to cost of goods sold.

Explanation / Answer

a) Plant overhead rate = (1.8 + 0.005*200)/200 = 0.014/ ounce answer b) Overhead absorbed to products in the naples plant = 210 * 0.014 = 2.94million c) Overhead over absorbed to products in the naples plant = 2.94-2.8 = 0.14million overabsorbed d) When the overabsorbed is written off from cost of goods sold, the net income will rise. As overallocated inccreased our expenses and reduced our income. Reducing the overallocated overhead will increase our income

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