Question

Bio Labs Inc. has entered into a contract with the provincial government to conduct some tests. The company analyzes the chemical and bacterial composition of well water in various municipalities. The contract price is $25.20 per test performed. The normal volume is 10,000 tests per month Each test requires two testing kits, which are $3.80 each at standard price. Direct labour to perform the test at standard is 10 minutes at $28.80 per hour. At normal volume, the overhead costs for the month are as follows: Variable overhead costs: Indirect labour $ 18,000 Utilities 4,000 Labour-related costs 15,000 Laboratory maintenance 11,000 Total Variable O/H $ 48,000 Fixed overhead costs: Supervisor Amortization Base utilities Insurance Total Fixed O/H $ 30,000 28,000 9,000 2,000 $ 69,000 Total Overhead Expenses $ 117,000 The company applies all fixed and variable overhead based on direct labour-hours used. During May, 9,000 tests were performed. The records show the following actual costs and production data: Actual cost $ 70,300 Number of test kits purchased Number of test kits used Direct labour Activity 19,000 18,500 1,623 hours $ 37,646 Total actual overhead costs: Variable $ 45,200 Fixed $ 68,500 Test kits are kept in inventory at standard cost. At the end of May, no tests were in process. Required Calculate the total estimated Overhead cost and determine if there is over- or underapplied overhead.

Answer 1

Calculation of Estimated Overhead Cost: Total Tests Performed During Month 9000 Total Variable Overhead Cost $48,000.00 Budgeted Tests 10000 Budgeted Labor Hrs (10000 x 10 Mins/60 Mins) 1666.67 Hrs Variable Overhead Cost Per Test ($48,000/1666.67) $28.80 Total Estimated Variable Overhead Cost (1623 Hrs x $28.80) $46,742.40 Total Fixed Overhead Cost Total Budgeted Direct Labor Hours = $69,000.00 10000 tests x 10 Minutes / 60 Minutes = 1666.666667 Budgeted Fixed Overhead Cost Per Hr ($69000/1666.667 Hrs) $41.40 Total Estimated Fixed Overhead Costs (1623 hours x $41.40) $67,192.19

Determination of Under or Over Application of Overhead Costs: Amount of Under Amount of Over Actual or Applied Overhead Applied Overhead incurred Cost Cost 45,200.00 $ - $ 1,542.40 68,500.00 $1,307.81 113,700.00 $ 1,307.81 $ 1,542.40 Estimated or Applied 46,742.40 $ $67,192.19 $ 113,934.59 $ Variable Overhead Cost Fixed Overhead Cost Totals $