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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Business

Helena Koch

11 September, 15:38

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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Answers (1)

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Veronica Bentley · Answer 1

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