(a) The answer I got was $31.99 and it is wrong. Ana Carillo and Associates is a
ID: 2534869 • Letter: #
Question
(a)
The answer I got was $31.99 and it is wrong.
Ana Carillo and Associates is a medium-sized company located near a large metropolitan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive homes, restaurants, and hotels. Although some of the work is custom, many of the cabinets are a standard size.One such non-custom model is called Luxury Base Frame. Normal production is 1,100 units. Each unit has a direct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 990 units were produced; 5,000 direct labor hours were allowed for standard production, but only 4,400 hours were used. Standard and actual overhead costs were as follows. Standard
(1,100 units) Actual
(990 units) Indirect materials $ 13,300 $ 13,700 Indirect labor 47,800 56,700 (Fixed) Manufacturing supervisors salaries 25,000 24,400 (Fixed) Manufacturing office employees salaries 14,400 13,900 (Fixed) Engineering costs 30,000 27,800 Computer costs 11,100 11,100 Electricity 2,800 2,800 (Fixed) Manufacturing building depreciation 8,900 8,900 (Fixed) Machinery depreciation 3,300 3,300 (Fixed) Trucks and forklift depreciation 1,700 1,700 Small tools 780 1,560 (Fixed) Insurance 560 560 (Fixed) Property taxes 330 330 Total $159,970 $166,750
Explanation / Answer
To calculate the overhead application rate, we divide the budgeted overheads by the budegeted labor hours for required for the standard output. In the given case, 5,000 hours given in the question are for standard hours for actual production of 990 units and therefore we are not required to divide the budgeted overheads by 5,000 hours.
Budgeted Overheads = 159,970
Budgeted Labor hours = 1,100 x 5 hours per unit = 5,500
Overhead application rate = 159970 / 5,500 = $29.09 per hour.
Question is little bit confusing as it given 5,000 hours were allowed for standard production. But the same is standard hours for actual production of 990 units.
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