The normal capacity of Noel Company is 4,000 units per month.At this volume,budgeted fixed and variable factory overhead are $16,000 and $20,000,respectively.In May,actual production was 4,200 units and actual overhead incurred was $37,900. What was the amount of factory overhead allowed for the actual level of production in May?

Question

Quizplus · Accepted Answer

The first step is to determine the predetermined overhead rate:
Predetermined Overhead Rate = Budgeted Variable Manufacturing Overhead / Budgeted Units of Production
Predetermined Overhead Rate = $20,000 / 4,000 units
Predetermined Overhead Rate = $5 per unit

The second step is to calculate the total overhead allowed for actual level of production:
Total Overhead Allowed = Predetermined Overhead Rate x Actual Units of Production
Total Overhead Allowed = $5 x 4,200 units
Total Overhead Allowed = $21,000

However, the actual overhead incurred was $37,900. This means that there was an overhead variance, which can be calculated as follows:
Overhead Variance = Actual Overhead Incurred - Total Overhead Allowed
Overhead Variance = $37,900 - $21,000
Overhead Variance = $16,900

Therefore, the amount of factory overhead allowed for the actual level of production in May was:
Total Overhead Allowed = Actual Overhead Incurred - Overhead Variance
Total Overhead Allowed = $37,900 - $16,900
Total Overhead Allowed = $21,000

However, the question is asking for the budgeted fixed overhead to be included. Therefore, the total overhead allowed for the actual level of production in May is:
Total Overhead Allowed = Budgeted Fixed Overhead + Total Variable Overhead Allowed
Total Overhead Allowed = $16,000 + $21,000
Total Overhead Allowed = $37,000

Therefore, the best choice is C, $37,000.

The Normal Capacity of Noel Company Is 4,000 Units Per