Question

Predetermined Overhead Rate, Applied Overhead, Unit Cost

Ripley, Inc., costs products using a normal costing system. The following data are available for last year:

Budgeted:
Overhead		$296,800
Machine hours		81,000
Direct labor hours		10,600
Actual:
Overhead		$296,100
Machine hours		79,200
Direct labor hours		10,210
Prime cost		$1,514,120
Number of units		180,000

Overhead is applied on the basis of direct labor hours.

Required:

1. What was the predetermined overhead rate?
$ per direct labor hour

2. What was the applied overhead for last year?
$

3. Was overhead over- or underapplied, and by how much?
  = $

4. What was the total cost per unit produced? (Carry your answer to four significant digits.)
$ per unit

Answer 1

1)

Predetermined overhead rate

= Total cost / Direct labour hours

= 296,800/10,600

= $28 per direct labour hour

2)

Actual overhead applied

= Actual overhead/ Actual direct labour hour

= 296,100/10,210

= $29 per direct labour hour

3)

As the overhead applied is higher than the predetermined overhead rate therefore the overhead was overapplied by ( 29 - 28) = $1 per direct labour hour

4)

Total cost per unit produced

Prime cost = 1,514,120

Overhead = 296,100

Total cost = $1,810,220

Total units = 180,000

Cost per unit

= 1,810,220/180,000

= $10.0568 per unit.