Question
Dynamic Designs, Inc. has developed a new design to produce track shoes that are used in cross-country races. The company's shoe design is innovative in
Dynamic Designs, Inc. has developed a new design to produce track shoes that are used in cross-country races. The company's shoe design is innovative in that the insole is made of a product that provides a greater cushion and adapts more easily to a runner's foot. Management estimates expected annual capacity to be 80,000 units; overhead is applied using expected annual capacity. The company's cost accountant predicts the following current year activities and related costs:
Standard unit variable manufacturing costs
P140
Variable unit selling expense
P6
Fixed manufacturing overhead
P2,400,000
Fixed selling and administrative expenses
P164,000
Selling price per unit
P225
Units of sales
70,000
Units of production
81,000
Units in beginning inventory
15,000
Other than any possible under- or overapplied fixed overhead, management expects no variances from the previous manufacturing costs. Under- or overapplied fixed overhead is to be written off to Cost of Goods Sold.
Determine the amount of under- or overapplied fixed overhead using absorption costing.
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