Question
For plantwide rates, all budgeted overhead costs are assigned to a plantwide pool. Next, a plantwide rate is calculated using a unit-level driver. Finally, overhead
For plantwide rates, all budgeted overhead costs are assigned to a plantwide pool. Next, a plantwide rate is calculated using a unit-level driver. Finally, overhead costs are assigned to products by multiplying the overhead rate by the actual units of the driver used by each product. The overhead cost per unit of product is simply the overhead assigned to the product divided by the units produced.
The overhead assigned to products using predetermined overhead rates is called applied overhead. Actual overhead Applied overhead is called an overhead variance. If the difference is positive, then the variance is referred to as (OVERAPPLIED/ UNDERAPPLIED) and if the difference is negative, then the variance is said to be (OVERAPPLIED/ UNDERAPPLIED). If the overhead variance is not material, then it is typically closed out to (COST OF GOODS SOLD/ FINISHED GOODS/ MATERIALS). On the other hand, if the variance is material, then the variance is prorated among (select all that apply): (MATERIALS, OVERHEAD CONTROL, AND SALES REVENUE/ WORK IN PROCESS, COST OF GOODS SOLD, AND FINISHED GOODS)
Apply the Concepts
Scenario II: Goodmark Company produces two types of birthday cards: scented and regular. Goodmark uses the Overhead Control account to accumulate both actual and applied overhead. The company has the following data for the past year:
Actual overhead | $760,000 | |
Sales | $3,500,000 | |
Materials used | $1,100,000 | |
Applied Overhead (in each account): | ||
Work in process | $72,000 | |
Finished goods | 216,000 | |
Cost of goods sold | 432,000 |
Required:
1. | Calculate the overhead variance for the year and label it under-or overapplied. |
Overhead variance: $________ (UNDERAPPLIED/OVERAPPLIED) |
2. | Assuming the variance is not material, the following closing entry would be made: |
Debit Overhead Control for $________ (UNDERAPPLIED/OVERAPPLIED) and credit (COST OF GOODS SOLD/ FINSIHED GOODS/ MATERIALS/ OVERHEAD CONTROL) for $______. |
3. | If the overhead variance is material, indicate how much of the variance would be __________ to each of the following accounts (if an amount is zero, enter "0"): | |||||||||||||||
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Departmental Rates
For departmental rates, overhead costs are assigned to individual production departments creating departmental overhead cost pools. The sum of the overhead in the departmental cost pools must (BE GREATER THAN/ EQUAL TO/ GREATER THAN)
the overhead in the plantwide cost pool. Overhead intensity and patterns of consumption by-products can differ from department to department. Accordingly, departmental rates are used because of the belief that they better reflect each product's consumption of resources and thus improve decision making and control.
Once overhead is assigned to individual production departments, then unit-based drivers such as direct labor hours and machine hours are used to compute departmental overhead rates. Overhead is assigned to products by multiplying the departmental rates by the amount of the driver used in each department. The total overhead assigned to products is the sum of the amount received in each department.
Apply the Concepts
Scenario III: Goodmark Company produces two types of birthday cards: scented and regular. During the year, 20,000 scented cards and 200,000 regular cards were produced. Goodmark has two production departments: Cutting and Printing. Direct labor hours are used to assign the overhead of Cutting and machine hours are used for Printing. The data for the two producing departments are given below:
Cutting | Printing | Total | |||
Direct labor hours: | |||||
Scented | 10,000 | 10,000 | 20,000 | ||
Regular | 150,000 | 10,000 | 160,000 | ||
Total | 160,000 | 20,000 | 180,000 | ||
Machine hours: | |||||
Scented | 2,000 | 8,000 | 10,000 | ||
Regular | 8,000 | 72,000 | 80,000 | ||
10,000 | 80,000 | 90,000 | |||
Overhead costs | $216,000 | $504,000 | $720,000 |
Required:
1. | Calculate the overhead rates for each department (round to the nearest cent): | ||||||
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2. | Calculate the overhead cost per unit (round to the nearest cent): | ||||||
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