Exercise 4-3A Allocating overhead cost to accomplish smoothing LO 4-2 Kenneth Co

Question

Exercise 4-3A Allocating overhead cost to accomplish smoothing LO 4-2 Kenneth Corporation expects to incur indirect overhead costs of $72,000 per month and direct manufacturing costs of $18 per unit. The expected production activity for the first four months of 2013 is as follows. Estimated production in units5,000 6,500 2,500 4,000 Required: a. Calculate a predetermined overhead rate based on the number of units of product expected to be made during the first four months of the year. Predetermined overhead rate per unit b. Allocate overhead costs to each month using the overhead rate computed in Requirement a Month Allocated Cost January February March April Total

Explanation / Answer

Total Units in 4 months = 5000 + 6500 + 2500 + 4000 = 18000

Overhead for 4 months = 72000 * 4 = 288000

Pre Determined Overhead rate = 288000 / 18000 = $ 16 per unit

Month Units Allocated Cost Jan      5,000.00             80,000.00 Feb      6,500.00           104,000.00 Mar      2,500.00             40,000.00 Apr      4,000.00             64,000.00 Total    18,000.00           288,000.00

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