Question

A company has two departments that all goods pass through, finishing and assembly. The finishing department overhead is applied based on machine hours, and the assembly department overhead is applied based on direct labor hours. Data on each department are as follows:

	Finishing	Assembly
Budgeted overhead	$80,000	$60,000
Budgeted direct labor hours	4,000 hrs.	10,000 hrs.
Budgeted machine hours	32,000 hrs.	1,000 hrs.
Actual overhead	$75,400	$59,700
Actual direct labor hours	4,210 hrs.	9,980 hrs.
Actual machine hours	28,600 hrs.	930 hrs.

A. Calculate the overhead rate for each department. (Round your answer to the nearest cent.)

Finishing OH rate	$ per machine hour
Assembly OH rate	$ per direct labor hour

B. What is each department's applied overhead?

Finishing applied OH	$
Assembly applied OH	$

C. Calculate each department's overhead variance. Specify whether it is overapplied or underapplied.

Machining OH variance	$
Assembly OH variance	$

Answer 1

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A. Finishing OH rate = Budgeted OH / Budgeted machine hours

= $80000 / 32000 hrs                                                 Budgeted OH for finishing=$80000

= $2.5 per machine hour                                         Budgeted machine hours=32000 hrs

Assembly OH rate = Budgeted OH / Budgeted labor hours          Budgeted OH= $60000

= $60000 / 10000 hrs                                               Budgeted labor hours= 10000 hrs

= $6 per labor hours

B. Finishing applied OH = Finishing OH rate X Actual machine hours

= 2.5 X 28600 hrs                                                             Finishing OH rate= $2.5

= $71500                                                                            Actual machine hours= 28600hrs

Assembly applied OH = Assembly OH rate X Actual direct labor hours

= 6 X 9980 hrs                                                                  Assembly OH rate= $6

= $59880                                                                           Actual direct labor hours= 9980 hrs

C. OH variance = Actual OH – Budgeted OH

If the result is positive then it is under-applied and when it is negative it is over-applied

Finishing OH variance = $75400 - $80000

= ($4600)

($4600) is over-applied OH.

Assembly OH variance = $59700 - $60000

= ($300)

($300) is over-applied OH.