Question

Craig Company uses a predetermined overhead rate to assign overhead to jobs. Because Craig's production is machine intensive, overhead is applied on the basis of machine hours. The expected overhead for the year was $5,702,400, and the practical level of activity is 396,000 machine hours. During the year, Craig used 404,000 machine hours and incurred actual overhead costs of $5,739,600. Craig also had the following balances of applied overhead in its accounts: Work-in-process inventory $ 550,560 Finished goods inventory 609,760 Cost of goods sold 1,799,680 Required: 1. Compute a predetermined overhead rate for Craig. Round your answer to the nearest cent. $ 14.4 per machine hour 2. Compute the overhead variance, and label it as under- or overapplied.

Answer 1

1. $14.4 per machine hour

2. $78,000 over-applied

Step-by-step explanation:

The computation is shown below:

1. Predetermined overhead rate = (Expected overhead for the year) ÷ (practical level of activity)

= $5,702,400 ÷ 396,000 machine hours

= $14.4

b. The overhead variance is

For computing the overhead variance, first we have to determine the applied overhead that is given below

= Actual machine hours × predetermined overhead rate

= 404,000 machine hours × $14.4

= $5,817,600

So, the overhead variance equals to

= Actual manufacturing overhead - actual overhead

= $5,739,600 - $5,817,600

= $78,000 over-applied