Atlanta Company is preparing its manufacturing overhead budg

Atlanta Company is preparing its manufacturing overhead budget for 2017. Relevant data consist of the following.

Units to be produced (by quarters): 10,000, 12,000, 14,000, 16,000.

Direct labor quantity standard is 1.5 direct labor hours per unit.

Variable overhead costs per direct labor hour total to $2.50.

Fixed overhead costs per quarter total to $62,000

Instructions

a. Prepare the manufacturing overhead budget for 2017 by quarters.

b.What is the pre-determined FOH rate based on direct labor hours?

c. How much fixed overhead will be applied in the first quarter?

Solution

Ans.(a) Ajanta Company Manufacturing Overhead Budget For the year 2017 Qtr.1 Qtr.2 Qtr.3 Qtr.4 Units Produced 10000 12000 14000 16000 Standard hours of direct labor hours per unit 1.5 1.5 1.5 1.5 Total Standard hours of direct labor hours per unit manufactured 15000 18000 21000 24000 Variable overhead cost per direct labor hours $         2.50 $          2.50 $         2.50 $        2.50        Total variable overhead cost $    37,500 $     45,000 $    52,500 $    60,000 Add: Fixed overhead cost per Quarter 62000 62000 62000 62000 Total Manufacturing Overhead cost $    99,500 $   107,000 $ 114,500 $ 122,000 Ans.(b) Predetermined manufacturing overhead rate = Total estimated manufacturing overhead costs / Total estimated direct labor cost Qtr.1 Qtr.2 Qtr.3 Qtr.4 Total Manufacturing Overhead cost $      99,500 $     107,000 $ 114,500 $   122,000 / Total Standard hours of direct labor hours per unit manufactured          15,000            18,000         21,000         24,000 Pre-determined overhead rate $           6.63 $            5.94 $         5.45 $          5.08 Ans.(c) Fixed overhead applied = Total fixed overhead cost in quarter 1 / Total units produced = $62,000 / 10,000 = $6.20