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14 December, 21:58

At the beginning of 2013, Barcroft Co. estimated that its total annual fixed overhead costs would amount to $25,000. Further, Barcroft estimated that its volume of production would be 2,000 units of product. Based on these estimates, Barcroft computed a predetermined overhead rate that was used to allocate overhead costs to the products made in 2013. As predicted, actual fixed overhead costs did amount to $25,000. However, actual volume of production amounted to 2,200 units of product. Based on this information alone: 

a. Products were costed accurately in 2013.

b. Products were overcosted in 2013.

c. Products were undercosted in 2013.

d. The answer cannot be determined from the information provided

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Answers (1)
  1. 15 December, 00:52
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    b. Products were overcosted in 2013

    Explanation:

    When determining the cost of a product, we consider only the Overheads Applied.

    Applied Overheads are calculated as:

    Pre-determined Overhead Rate multiplied by Actual Activity

    Predetermined Overhead Rate is calculated as follows:

    Budgeted Overheads divided by Budgeted Activity

    Predetermined Overhead Rate = $25,000/2,000 units

    = $ 12.50 per unit

    Applied Overheads = $ 12.50 per unit * 2,200 units

    = $ 27,500

    The Overheads Applied are then Compared to Actual Overhead Cost to determine is the Overheads where Over or Under Applied

    Therefore our case presents the following:

    Applied Overheads ($ 27,500) >Actual Overheads ($25,000)

    Therefore, we have an Over-Application situation.

    Over-Applied Overheads are $2,500
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