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FedY is a specialized packaging company that packages other manufacturers' products. Other manufacturers ship their products to FedY in bulk. FedY than packages the products
FedY is a specialized packaging company that packages other manufacturers' products. | ||||||
Other manufacturers ship their products to FedY in bulk. FedY than packages the products | ||||||
using high-speed, state-of-the-art packaging machines and ships the packaged products to | ||||||
wholesalers. A typical order involves packaging small toys in see-through plastic and | ||||||
cardboard containers. | ||||||
FedY uses a flexible budget to forecast annual plantwide overhead, which is then allocated | ||||||
to jobs based on machine hours. The annual flexible overhead budget is projected to be | ||||||
$6 million of fixed costs and $120 per machine hour. The budgeted number of machine | ||||||
hours for the year is 20,000. | ||||||
At the end of the year, 21,000 machine hours were used and actual overhead incurred was | ||||||
$9.14 million. | ||||||
REQUIRED: | ||||||
1. Calculate the overhead rate at the beginning of the year. | ||||||
2. Calculate the amount of over/underabsorbed overhead for the year. | ||||||
3. The company's policy is to write off any over/underabsorbed overhead to cost of goods | ||||||
sold. Will net income rise or fall this year when the over/underabsorbed overhead is | ||||||
written off to cost of goods sold? Why? |
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