Problem 1

Canyon Ridge Company uses a predetermined rate for applying overhead to production using normal costing. The rates for Year 1 follow: variable, 100 percent of direct labor dollars; fixed, 150 percent of direct labor dollars. Actual overhead costs incurred follow: variable, $17,500; fixed, $20,000. Actual direct materials costs were $33,500, and actual direct labor costs were $18,000. Canyon Ridge produced one job in Year 1.

Required:

a. Calculate actual costs of the job.

b. Calculate normal costs of the job using predetermined overhead rates.

c. Should Canyon Ridge look at adjusting their allocation rates for next year, how might this help management improve their decision making? What my cause a difference in absorption?