P 93: Durnstein Schnapps

Durnstein Schnapps produces three types of schnapps from locally grown Austrian pears, plums, and cherries. Schnapps is a clear, colorless beverage distilled from fermented fruit that normally contains about 40 percent alcohol. The pear and plum schnapps are produced using an identical process whereby the pears and plums are fermented and then distilled. The cherry schnapps employs a similar production process but requires more direct labor to produce the unique and highly prized Durnstein Cherry Schnapps. Each variety of schnapps (pears, plums, and cherries) is produced in batches of 500 liters and then bottled.

Durnstein Schnapps uses an absorption costing system to assign overhead to its three products for inventory costing. A single, predetermined, plantwide overhead rate is computed using a flexible manufacturing overhead budget. Variable manufacturing overhead is budgeted to be 16.00 per direct labor hour and fixed manufacturing overhead is budgeted to be 845,000 for the year. The following table summarizes budgeted and operating data for the last fiscal year.

Pear Plum Cherry Actual batches 520 370 210 Budgeted number of batches 500 400 200 Actual direct hours per batch 17 15 34 Budgeted direct labor hours per batch 18 18 35

Durnstein Schnaps incurred actual manufacturing overhead last year of 1,250,500.

Required: a. Calculate Durnstein Schnapps plantwide overhead rate for last year. b. One batch of plum schnapps used 20 direct labor hours. How much manufacturing overhead was absorbed by this one batch?

c. How much over/underabsorbed overhead did Durnstein Schnapps have last year? d. Recommend/discuss how Durnstein Schnapps is likely to account for the over/underabsorbed overhead you calculated in part (c).