On September 30 the fixed manufacturing overhead account of

On September 30, the fixed manufacturing overhead account of Gordon Ltd. showed a debit balance of $5832 after fixed manufacturing overhead had been applied for the month. If the actual total manufacturing overhead cost incurred in September was $118868 and the production was 7731 units, then what was the rate for applying fixed manufacturing overhead cost? Select one:

a. $ 15.38 per unit

b. $ 16.13 per unit

c. $ 14.62 per unit

d. $ 15.62 per unit

Solution

A debit balance in the fixed manufacturing overhead account means an over-applied overhead based on predetermined overhead rates

So, Gross amount of manufacturing overhead applied

= Actual manufacturing overhead incurred + Value of debit balance or over-applied overhead

= $118,868 + $5,832

= $ 124,700

So, overhead application rate

= Gross amount of manufacturing overhead applied / Production

= $ 124,700 / 7,731

= $16.13 per unit

So, as per above calculations, option b is the correct option