Question

Paragraph Styles Question 2 (Budgeted manufacturing overhead rate, allocated manufacturing overhead) (25 Marks) Taylor Company uses normal costing. It allocates manufacturing overhead costs using a budgeted rate per machine-hour. The following data are available for 2017: Budgeted manufacturing overhead costs $3,800,000 Budgeted machine-hours 200,000 Actual manufacturing overhead costs $3,660,000 Actual machine-hours 196,000 Required: 1. Calculate the budgeted manufacturing overhead rate. 2. Calculate the manufacturing overhead allocated during 2017 3. Calculate the amount of under- or overallocated manufacturing overhead.

Answer 1

1. Computation of budgeted manufacturing overhead rate:

Budgeted Manufacturing Overhead Rate = Budgeted Manufacturing Overhead Costs / Budgeted machine Hours

= $3,800,000 / 200,000 = $19 per machine hour

2. Computation of allocated manufacturing overhead costs during 2019:

Allocated Manufacturing Overhead = Budgeted manufacturing overhead rate * Actual Machine Hours

= $19 * 196,000 = $3,724,000

3. Computation of under or over allocated overhead

Actual Overapplied = $3,660,000

As the actual overheads are less than the overhead applied, hence it is overallocated overheads by = $3,724,000 - $3,660,000 = $64,000

4. The managers needs to calculate the under or over allocated overhead just to know the performance of the company when it comes to overhead. It tells us whether the ccompany has performed abve or below the standards set by them.