As an assistant cost accountant for Vonn industries, you have been assigned to review the activity base for the predetermined factory overhead rate. The president, Toney Favre has expressed concern that the over-or under applied overhead has fluctuated excessively over the years.
An analysis of the company’s operations and use of the current overhead rate (direct material usage) has narrowed the operations and use of the current overhead rate (direct materials usage) has narrowed the possible alternative overhead bases to direct labor cost and machine hours. For the past five years the following data have been gathered
2012 2011 2010 2009 2008
Actual overhead $1,062,500 $ 1,250,000 $1,025,000 $ 975,000 $937,500
Applied overhead 1,057,500 1,255,000 1,021,000 977,500 938,750
(over-) under applied overhead
$5,000 ( $5,000) $4,000 $(2,500) $(1,250)
Direct labor cost 3,560,000 4,160,000 3,400,000 3,240,000 3,140,000
Machine hours 126,250 149,000 122,000 116,000 111,750
- Calculate a predetermined factory overhead rate for each alternative base, assuming that rate would have been determined by relating the total amount of factory overhead for the past five years to the base
For each year of the past five years determine the over or under applied overhead, based on the two predetermined overhead rates developed in part one.