Wiki Wiki Company has determined that the variable overhead rate is $4.50 per direct labor hour in the Fabrication Department

Wiki Wiki Company has determined that the variable overhead rate is $4.50 per direct labor hour in the Fabrication Department. The normal production capacity for the Fabrication Department is 10,000 hours for the month. Fixed costs are budgeted at $60,000 for the month.

a. Prepare a monthly factory overhead flexible budget for 9,000, 10,000, and 11,000 hours of production.

b. How much overhead would be applied to production if 9,000 hours were used in the department during the month?

Answer:


a. 
b. Overhead applied at actual production:  
 Actual hours…………………………………………………………………………… 9,000 
 × Overhead application rate*……………………………………………………… $  10.50 
 Factory overhead applied………………………………………………………… $94,500 
* Total factory overhead rate to be applied to production: 
Variable factory overhead………………………………………………… $ 4.50 
Fixed factory overhead**…………………………………………………    6.00 
Total……………………………………………………………………………  $10.50 
$60,000 
** Fixed factory overhead rate: =  $6.00 per hr. 
10,000 hrs. 
Note: The fixed factory overhead rate is determined at normal production.