Question

Schneider, Inc., had the following information relating to Year 1: Budgeted factory overhead: $74,800 Actual factory overhead: $78,300 Applied factory overhead: $76,500 Estimated direct labor hours: 44,000 Actual direct labor hours: ? If Schneider decides to use the actual results from Year 1 to determine the Year 2 overhead rate, what is the Year 2 overhead rate?

Answer 1

The actual direct labor hours are 45,000.

The overhead rate for Year 2 is $1.74.

Step-by-step explanation:

Compute the actual direct labor hours:

`\begin{aligned}\text{Actual direct labor hours}&=\frac{\text{Applied overheads}}{\text{Overhead rate}}\\&=(\$76,500)/(1.7)\\&=45,000\end{aligned}`

Therefore, the actual direct labor hours are 45,000.

Compute the overhead rate for Year 2:

`\begin{aligned}\text{Overhead rate}&=\frac{\text{Actual overheads}}{\text{Actual direct labor hours}}\\&=(\$78,300)/(45,000)\\&=1.74\end{aligned}`

Therefore, the overhead rate for Year 2 is $1.74.

Working note:

Calculate the overhead rate for Year 1:

`\begin{aligned}\text{Overhead rate}&=\frac{\text{Budgeted overheads}}{\text{Estimated direct labor hours}}\\&=(\$74,800)/(44,000)\\&=1.7\end{aligned}`