For Patch It Company, labor is the highest single expense, totaling $600,000 for 20,000 hours of work
Question:
For Patch It Company, labor is the highest single expense, totaling $600,000 for 20,000 hours of work last year. Overhead costs for last year were $450,000 and were applied to specific jobs on the basis of labor hours worked. This year, the company anticipates a 30 percent increase in overhead costs. Labor costs will increase by $30,000, and the number of hours worked is expected to increase by 25 percent.
1. Determine the total amount of overhead anticipated this year.
2. Compute the overhead rate for this year.
3. At the end of this year, Patch It had compiled a total of 26,000 labor hours worked. The actual overhead incurred was $610,400.
a. Using the overhead rate computed in 2, determine the total amount of overhead applied to operations during the year.
b. Compute the amount of under/overapplied overhead for the year.
c. Will the Cost of Goods Sold account to be increased or decreased to correct the under/overapplication of overhead?
Managerial economics
ISBN: 978-1118041581
7th edition
Authors: william f. samuelson stephen g. marks