The Bobkim Company uses a predetermined overhead rate of RM4 per direct labor hour to apply overhead. During the year, 30, 000 direct labor hours were worked. Actual overhead costs for the year were RM110, 000. Bobkims overhead variance would be?

MANUFACTURING OVERHEAD

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

The Bobkim Company uses a predetermined overhead rate of RM4 per direct labor hour to apply overhead. During the year, 30, 000 direct labor hours were worked. Actual overhead costs for the year were RM110, 000. Bobkim’s overhead variance would be?

A	RM2, 500 Under-applied.
B	RM2, 500 Over-applied.
C	RM10, 000 Under-applied.
D	RM10, 000 Over-applied

Explanation:

Detailed explanation-1: -You can calculate predetermined overhead rate by dividing the manufacturing overhead cost by the activity driver. For example, if the activity driver was machine-hours, then you would divide overhead costs by the estimated number of machine hours.

Detailed explanation-2: -The predetermined overhead allocation rate formula is calculated by dividing the estimated manufacturing overhead cost by the allocation base. The allocation base includes direct labor costs, direct labor dollars, or the number of machine-hours.

Detailed explanation-3: -The use of predetermined overhead rates can help smooth fluctuations in actual overhead costs due to periodic variations (such as seasonal changes). This will ensure that product costs remain constant over the year.

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ECONOMICS

COST ACCOUNTING

MANUFACTURING OVERHEAD