Reference no: EM132472347

	2018		2019		2020
	budgeted	actual	budgeted	actual	budgeted
Revenue	2400000	2320000	2700000	2800000	2000000
Direct Materials	360000	380000	I      405000	430000	320000
Direct Labor	720000	725000	I      810000	900000	650000
Variable factory overhead	144000	140000	I      162000	160000	130000
Fixed factory overhead	400000	425000	I      400000	440000	400000
Variable SG&A expences	240000	260000	I     300000	300000	220000
Fixed SG&A expences	200000	180000	180000	200000	200000

The owner of the business is sure that average of direct labor cost for years 2018 and 2019 is fair estimate of her normal volume of business

Bill for client is build like this:

1. estimate direct labor and material cost
2. apply overhead amount on job. at the beginning of each year new budgeted overhead is computed.
3. apply 70% markup

Questions:

Problem 1) What is correct way to calculate Pretermined overhead rate (POHR) for each year?

1.1.) POHR = total overhead/average BUDGETED direct labor of 2018-2019?

1.2.) POHR = total overhead/average REAL direct labor of 2018-2019?

1.3.) POHR = total overhead/direct labor separately?

Or it is possible to use all these methods?

Question 2) Over and under applied overhead for years 2018 and 2019