Mosbach Corporation uses a standard cost system to apply overhead to products based on standard direct labor hours. The document provides data on variable overhead costs, total fixed overhead costs, budgeted standard direct labor hours, actual direct labor hours, and standard direct labor hours allowed for actual output. It then shows the calculation of the predetermined overhead rate of $11 per direct labor hour and the overhead amount of $902,000 that would be applied based on the standard direct labor hours allowed for actual output of 82,000 hours.
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Mosbach Corporation has a standard cost system in which it applies ove.docx
1. Mosbach Corporation has a standard cost system in which it applies overhead to products based
on the standard direct labor-hours allowed for the actual output of the period. Data concerning
the most recent year appear below:
Variable overhead cost per direct labor-hour $3.50
Total fixed overhead cost per year $600,000
Budgeted standard direct labor-hours (denominator level of activity) 80,000
Actual direct labor-hours 84,000
Standard direct labor-hours allowed for the actual output 82,000
Required:
1. Compute the predetermined overhead rate for the year.
2. Determine the amount of overhead that would be applied to the output of the period.
Solution
1. The flexible budget amount for overhead at the denominator level of activity must be
determined before the predetermined overhead rate can be computed.
Total fixed overhead cost per year..............................
$600,000
Total variable overhead cost at the denominator level of activity ($3.50 per DLH × 80,000
DLHs)....................
280,000
Total overhead cost at the denominator level of activity.
$880,000
2.
Standard direct labor-hours allowed for the actual output (a).........................
82,000
2. DLHs
Predetermined overhead rate (b)..........
$11.00
per DLH
Overhead applied (a) × (b)..................
$902,000
Total fixed overhead cost per year.............................. $600,000
Total variable overhead cost at the denominator level of activity ($3.50 per DLH ×
80,000 DLHs)....................
280,000
Total overhead cost at the denominator level of activity. $880,000