Question

You have just been appointed to the position of assistant management accountant at the Nagambie factory of Zero Company Ltd.

Zero Company Ltd is a diversified conglomerate industrial manufacturing company whose factory managers enjoy considerable independence.

When you arrive at the beginning of the new financial year, you are taken aside and briefed on the details of your appointment

The factory produces three items: tractor filters used by the local farmers, Tank Filters used by a local army base and pool filters used by a local pool company.

You are provided with the following information:

Budgeted machine hours	10,000
Budgeted direct labour hours	20,000
Budgeted direct labour cost	$280,000
Budgeted manufacturing overhead	$364,000

During the month of June the company used the following inputs:

	Farm Filters	Pool Filters	Tank Filters
Actual machine hours	400	200	133
Actual direct labour hours	533	400	267

Actual manufacturing overhead costs for June were $34,000 and the actual direct labour rate was $22.50 per hour.

Required: Answer all questions below:

You are asked by the factory manager to:

(a)         Calculate the company’s predetermined plant wide overhead rate.                                                

(b)         Estimate the overhead costs of each of the three products.                                                        .

(c)          Compare the actual overhead cost to the amount of overhead applied to the three products in June.

Answer 1