Mallett Manufacturing estimates the following activity for 2013:
• Expected production 50 000 units
• Expected direct labour hours 5000 hours
• Expected manufacturing overhead $200 000.
Manufacturing overhead is allocated on the basis of direct labour hours. At the end of the financial period, the following information was collected:
• Direct labour hours 4000 hours
• Manufacturing overhead $220 000.
Required:
a. Calculate the predetermined indirect cost rate at the beginning of 2013.
b. Calculate the actual indirect cost rate for 2013.
c. Explain why a variance would need to be calculated and shown in the financial records.