Reference no: EM131805378

Problem

As an assistant cost accountant for Vonn industries, you have been assigned to review the activity base for the predetermined factory overhead rate. The president, Toney Favre has expressed concern that the over-or under applied overhead has fluctuated excessively over the years.

An analysis of the company's operations and use of the current overhead rate (direct material usage) has narrowed the operations and use of the current overhead rate (direct materials usage) has narrowed the possible alternative overhead bases to direct labor cost and machine hours. For the past five years the following data have been gathered

                                               2012                 2011                 2010                 2009                   2008

Actual overhead                        $1,062,500         $ 1,250,000      $1,025,000        $ 975,000           $937,500

Applied overhead                       1,057,500          1,255,000         1,021,000          977,500              938,750

(over-) under applied overhead   $5,000               ($5,000)           $4,000               $(2,500)             $(1,250)

Direct labor cost                       3,560,000           4,160,000         3,400,000          3,240,000           3,140,000

Machine hours                          126,250              149,000           122,000             116,000              111,750

Calculate a predetermined factory overhead rate for each alternative base, assuming that rate would have been determined by relating the total amount of factory overhead for the past five years to the base

For each year of the past five years determine the over or under applied overhead, based on the two predetermined overhead rates developed in part one.