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Baird Company makes classic Polish sausage. The company uses a standard cost system to help control costs. Manufacturing overhead is applied to production on
Baird Company makes classic Polish sausage. The company uses a standard cost system to help control costs. Manufacturing overhead is applied to production on the basis of standard direct labor-hours. According to the company's planning budget, the following manufacturing overhead costs should be incurred at an activity level of 22,000 labor-hours (the denominator activity level): Variable manufacturing overhead cost Fixed manufacturing overhead cost Total manufacturing overhead cost $ 82,500 126,500 $ 209,000 During the most recent year, the following operating results were recorded: Activity: Actual labor-hours worked Standard labor-hours allowed for the actual output Cost: Actual variable manufacturing overhead cost incurred Actual fixed manufacturing overhead cost incurred 19,000 20,000 $ 95,000 $110,000 At the end of the year, the company's Manufacturing Overhead account contained the following data: Manufacturing Overhead Debit Credit Actual 205,000 Applied 190,000 15,000 Management would like to determine the cause of the $15,000 underapplied overhead.
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