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  • 1.  Essay question

    Posted 02-06-2019 01:23 AM

    In this question
    Why he counts the manufacturing variable overhead in applied  amount, but the manufacturing fixed overhead takes the actual amount?
    Why he didn't take the applied amount of the fixed O/H same like the variable O/H???

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  • 2.  RE: Essay question

    Posted 02-07-2019 02:15 PM
    The short answer is:  year 4 variable cost income statement has removed the FOH costs applied to inventories to an actual period cost of $37,400.

    This is how it was done:

    Removing FOH costs from inventories requires calculating the FOH application rate and multiplying it by the number of labor hours in beginning and ending inventory costs. 

    The fixed overhead applied rate is budgeted FOH $25.000/25.000 actual direct labor hrs. ($1/hr). Actual labor expended was 23.000 hrs at the applied rate of $1/hr, total FOH applied was $23.000. Actual FOH cost was $37.000 compared to $23.000 applied, resulting in a $14.400 under-applied FOH as shown in year 4 financial statements. 
         

    Saludos,
     
    Luis G. Boggiano, CFA
    +58 412-250-4925
    +58 414-902-3725