| E-13.10 | ||||||||
| a) | Manufacturing Overhead | $173,250 | ||||||
| Overhead Rate | $15 | |||||||
| Number of Hours of Direct Labour = Manufacturing Overhead / Overhead Rate |
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| = 173250 / 15 | ||||||||
| $11,550.00 | ||||||||
| b) | Calculating Over applied or Under Applied Overheads | |||||||
| Since Budgeted Manufacturing Overhead is more than Actual Overhead |
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| the overheads are over applied. | ||||||||
| Budgeted Manufacturing Overhead | $173,250 | |||||||
| Actual Manufacturing Overhead | 166425 | |||||||
| Over Applied Overhead | $6,825 | |||||||
| c) | The overhead cost are under applied or over applied due top two reasons : |
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| 1. Overhead cost is based on predetermined overhead rates and it assumes that actual |
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| overhead cost will be in proporation to the actual amount spent. |
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| However the reality is different as overhaed includes the fixed cost also, that |
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| does not change with the change in machine hours. |
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| 2. The amount spent on overheads may not be in control. If the manager responsible |
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| for the overhead cost exercises a good control, then actual cost will be less than |
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| what is expected. If he does not exercises proper control, actual cost will be higher |
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| than what is expected. | ||||||||
| d) | Under Applied Overheads means profits are shown at a higher amount in the books |
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| The profit should be decrteased and thus the amount of Under Applied Overhead |
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| Should be debited to theCost of Goods Sold. |
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| Over Applied Overheads means overheads are charged at a higher amount than |
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| actually incurred. | ||||||||
| It results in lower profits, thus over applied overheads are added to the Company’s Profit |
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| at the end of accopunting period. | ||||||||
ScholarMatic: Explanation & Answer
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