Folson Company is planning to produce 4,250,000 speakers for the coming year. Actual production was 4,000,000 speakers. Each speaker requires 0.80 direct labor hours per unit. Predetermined overhead rates are calculated using expected production, measured in direct labor hours. The budgeted variable overhead for the coming year is $680,000. The actual variable overhead incurred was $714,000. The applied variable overhead for the year is

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as follows:

Predetermined overhead rate = Budgeted variable overhead / Budgeted direct labor hours

Budgeted direct labor hours = Budgeted production × Direct labor hours per unit
Budgeted direct labor hours = 4,250,000 × 0.80 = 3,400,000

Predetermined overhead rate = $680,000 / 3,400,000 direct labor hours
Predetermined overhead rate = $0.20 per direct labor hour

The applied variable overhead is calculated as follows:

Applied variable overhead = Actual direct labor hours × Predetermined overhead rate
Applied variable overhead = 4,000,000 × 0.20
Applied variable overhead = $640,000

Therefore, the best choice is C.

Folson Company Is Planning to Produce 4,250,000 Speakers for the Coming