The normal capacity of Yule Company is 5,000 units per month.At this volume,budgeted fixed and variable factory overhead are $25,000 and $20,000,respectively.In December,actual production was 4,800 units and actual overhead incurred was $46,300. What is the factory overhead application rate at the actual level of production (rounded to the nearest penny)?

Question

Quizplus · Accepted Answer

To calculate the factory overhead application rate, we need to divide the total budgeted overhead by the normal capacity of production:

Application rate = (Fixed budgeted overhead + Variable budgeted overhead) ÷ Normal capacity
Application rate = ($25,000 + $20,000) ÷ 5,000 units
Application rate = $9 per unit

Now we can use the application rate to calculate the overhead applied to actual production:

Overhead applied = Application rate x Actual production
Overhead applied = $9 x 4,800 units
Overhead applied = $43,200

The actual overhead incurred was $46,300, so there was an overhead variance of $3,100:

Overhead variance = Actual overhead incurred - Overhead applied
Overhead variance = $46,300 - $43,200
Overhead variance = $3,100

Therefore, the factory overhead application rate at the actual level of production is:

Application rate = (Fixed budgeted overhead + Variable budgeted overhead - Overhead variance) ÷ Actual production
Application rate = ($25,000 + $20,000 - $3,100) ÷ 4,800 units
Application rate = $41,900 ÷ 4,800 units
Application rate = $8.73 per unit (rounded to the nearest penny)

The best choice is B, as it is the closest to the calculated application rate.

The Normal Capacity of Yule Company Is 5,000 Units Per