Question

Predetermined Overhead Rate, Application of Overhead

Findley Company and Lemon Company both use predetermined overhead rates to apply manufacturing overhead to production. Findley’s is based on machine hours, and Lemon’s is based on materials cost. Budgeted production and cost data for Findley and Lemon are as follows:

$hmcc03h_ch04_e4-11.JPG$

At the end of the year, Findley Company had incurred overhead of $915,000 and had produced 19,600 units using 47,780 machine hours and materials costing $445,000. Lemon Company had incurred overhead of $972,000 and had produced 61,500 units using 32,650 machine hours and materials costing $1,777,500.

Required:

1. Compute the predetermined overhead rates for Findley Company and Lemon Company.

	Predetermined Overhead Rate
Findley	$	per machine hour
Lemon		% of materials cost

2. Was overhead over- or underapplied for each company?

Findley	-
Lemon	-

By how much?

Findley: $

Lemon: $

Answer 1

Statement showing computations
Particulars	Findley	Lemon
Manufacturing Overhead	912,000.00	990,000.00
Machine Hours	48,000.00
Predetermined Overhead Rate per machine hr= Manu O/H / Machine hrs= 912000/48000	19.00
Materials Cost		1,800,000.00
Predetermined Overhead Rate in % = Manu O/H / Materials cost= 990000/1800000		55.0%
Actual Machine Hours	47,780.00
Materials Cost Actual		1,777,500.00
Applied Overhead = Findley = 47780*19 Lemon = 1777500*55%	907,820.00	977,625.00
Actual Overhead	915,000.00	972,000.00
Difference = Applied - Actual	(7,180.00)	5,625.00
Under/Over	Underapplied	Overapplied
Reason	Overhead underapplied since Actual is more than Applied Overhead	Overhead Overapplied since Actual is less than Applied Overhead