Question

Exercise 4.11 Predetermined Overhead Rate, Applied Overhead, Unit Cost Ripley, Inc., costs products using a normal costing system. The following data are available for last year: Budgeted: Overhead $285,600 Machine hours 84.000 Direct labor hours 10.200 Actual: Overhead $285,000 Machine hours 82.200 Direct labor hours 9,930 Prime cost $1,050,000 Number of units 150,000 Overhead is applied on the basis of direct labor hours. Required: 1. What was the predetermined overhead rate? 2. What was the applied overhead for last year? 3. Was overhead over- or underapplied, and by how much? 4. What was the total cost per unit produced (carry your answer to four signint digits)

Answer 1

1. Calculation of the predetermined overhead rate:

Budgeted overhead cost Predetermined overhead rate = Budgeted Direct labor hours $285,600 10,200 = 28 per labor hour

Hence, the predetermined overhead rate is $28 per labor hour.

2. Calculation of the applied overhead:

Applied overhead = Actual Direct labor hours x Predetermined overhead rate =9,930x $28 = $278,040

Hence, the applied overhead is $278,040.

3.

Actual overheads are $285,000 and applied overhead is $278,040, applied overhead is less than actual overhead, thus the overheads are under applied.

Calculation of underapplied overhead:

Under applied overhead = Actual overhead – Applied overhead = $285,000 - $278,040 = $6,960

Thus, the underapplied overhead is $6,960.

4.

Calculation of total cost per unit:

Applied overhead + Prime cost Total cost per unit = = Number of units $278,040+$1,050,000 150,000 $1,328,040 150,000 = $8.8536

Thus, the total cost per unit is $8.8536.