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23 November, 03:38

Reyes Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $284,590, budgeted machine-hours were 19,100. Actual factory overhead was $243,830, actual machine-hours were 17,750. How much overhead would be applied to production?

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  1. 23 November, 03:40
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    Amount of overheads to be applied to production = $264,475

    Explanation:

    Absorption costing

    Absorption costing is method of costing where overheads are charged to units produced using volume-based bases. e. g mahine hours, labour hours e. t. c.

    Under this costings system, inventory and completed units are valued using full cost.

    Full cost = D. Mat. + D. Lab. + Variable Prod. OH + Fixed Prod. Oh

    Step 1: Calculate the overheard absorption rate (OAR) /

    Fixed Prod OH (FPOH)

    = Budgeted overheads for the period / Budgeted machine hours

    = $284,590 / 19,100 hours

    =$ 14.9 per machine hour

    Step 2: Calculate the absorbed overheads

    Absorbed overheads = OAR * Actual machine hours

    = $264,475

    Amount of overheads to be applied to production = $264,475
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Home » Business » Reyes Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $284,590, budgeted machine-hours were 19,100. Actual factory overhead was $243,830, actual machine-hours were 17,750.
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