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Chilczuk, S.A., of Gdansk, Poland, is a major producer of classic Polish sausage. The company uses a standard cost system to help control costs. Manufacturing
Chilczuk, S.A., of Gdansk, Poland, is a major producer of 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 flexible budget, the following manufacturing overhead costs should be incurred at an activity level of 28,000 labor-hours (the denominator activity level): Variable manufacturing overhead cost 147,000 Fixed manufacturing overhead cost 203,000 350,000 Total manufacturing overhead cost During the most recent year, the following operating results were recorded: Activity: Actual labor-hours worked 25,000 26,000 Standard labor-hours allowed for output Cost: $170,000 Actual variable manufacturing overhead cost incurred $182,000 Actual fixed manufacturing overhead cost incurred At the end of the year, the company's Manufacturing Overhead account contained the following data: Manufacturing overhead 325,000 Actual 352,000 Applied 27,000 Management would like to determine the cause of the $27,000 underapplied overhead
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