Question

Marigold Company produces one product, a putter called GO-Putter. Marigold uses a standard cost system and determines that it should take one hour of direct labor to produce one GO-Putter. The normal production capacity for this putter is 100,000 units per year. The total budgeted overhead at normal capacity is $850,000 comprised of $300,000 of variable costs and $550,000 of fixed costs. Marigold applies overhead on the basis of direct labor hours. During the current year, Marigold produced 81,800 putters, worked 97,800 direct labor hours, and incurred variable overhead costs of $173,825 and fixed overhead costs of $642,300.

Required:
Compute the predetermined variable overhead rate and the predetermined fixed overhead rate.

Answer 1

Marigold Company

Predetermined variable overhead rate:

= $3 per dlh

Predetermined fixed overhead rate:

= $5.50 per dlh

Step-by-step explanation:

a) Data and Calculations:

Direct labor hour to produce one GO-Putter = 1 hour

Production capacity for GO-Putter = 100,000 units per year

Budgeted overhead costs:

Total overhead at normal capacity = $850,000

Variable overhead costs = $300,000

Fixed overhead costs = $550,000

Total estimated direct labor hours = 100,000 dlh (100,000 units * 1 hour)

Overhead application basis = Direct labor hours

Actual results:

Units of GO-Putters produced = 81,800

Direct labor hours used = 97,800

Variable overhead costs = $173,825

Fixed overhead costs = $642,300

Predetermined variable overhead rate:

= $300,000/100,000 = $3 per dlh

Predetermined fixed overhead rate:

= $550,000/100,000 = $5.50 per dlh