Question

BMW began 2005 operations in West Germany using Manufacturing Overhead estimation and allocation. They developed the Predetermined Overhead Rate (POHR) that was based on overhead costs of $78,000 and an allocation base of Direct Labor Hours of 30,000.

Year-end records indicate:
   Machine Hours              30,000
   Direct Labor Hours          25,000
   Direct Labor Dollars       $90,000
   Units produced              40,000

What is the amount of allocated overhead?

Answer 1

	CALCULATION OF OVERHEAD RATE
	OVERHEAD RATE = COST POOL / TOTAL ACTIVITY MEASURE
	Cost = Overhead = $ 78,000
	Total Activity = predetermined 30,000 hours
	OVERHEAD RATE = COST POOL / TOTAL ACTIVITY MEASURE
	OVERHEAD RATE = $ 78,000 / 30,00 labour Hour
	OVERHEAD RATE = $ 2.60 Per Labour Hour
	Answer = Allocated Overhead = $ 2.60 Per hours
	Note: Actual Overhead is recovered = 25,000 Hrs X $ 2.60 = $ 65,000
	There is under recovery of overhead = $ 78,000 - $ 65,000 = $ 13,000