Micro Enterprises planned to produce 120,000 lerts per year. Annual overheads, o

Question

Micro Enterprises planned to produce 120,000 lerts per year. Annual overheads, of which 32.5% are variable, are estimated at $320,400. Each lert takes 1.2 machine hours and 3 labor hours to produce. The firm allocates overhead by direct labor hours.

You review the accounting records at the end of the year. You learn that Micro made 125,000 lerts in the year, using 356,000 direct labor hours. Actual overhead expenditures totaled $333,333.

a) Under-applied overhead is $417 and should be credited to CGS

b) Under-applied overhead is $417 and should be prorated across Raw Materials, Work in Process, and Finished Goods inventories and Cost of Goods Sold

c) Under-applied overhead is $16,493 and should be charged to Cost of Goods Sold

d) Over-applied overheads are $417 and should be credited to Cost of Goods Sold

e) None of the above

Explanation / Answer

Overhead rate =320400/360000 = 0.89 per labour hour

Overhead applied = 356000*.89 = 316840

Actual overhead = 333333

Under applied overhead = 316840-333333 = 16493

So answer is c) Under-applied overhead is $16,493 and should be charged to Cost of Goods Sold

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.