Reyes Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $284,590, budgeted machine-hours were 19,100. Actual factory overhead was $243,830, actual machine-hours were 17,750. How much overhead would be applied to production ?

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Kolawole845 Kolawole845 · Answer 1 · 2020-03-15T05:31:08+01:00

Answer:

Amount of overheads to be applied to production =$264,475

Explanation:

Absorption costing

Absorption costing is method of costing where overheads are charged to units produced using volume-based bases. e.g mahine hours, labour hours e.t.c.

Under this costings system, inventory and completed units are valued using full cost.

Full cost = D.Mat. + D.Lab. + Variable Prod. OH + Fixed Prod. Oh

Step 1: Calculate the overheard absorption rate (OAR)/

Fixed Prod OH (FPOH)

= Budgeted overheads for the period / Budgeted machine hours

= $284,590/ 19,100 hours

=$ 14.9 per machine hour

Step 2: Calculate the absorbed overheads

Absorbed overheads = OAR × Actual machine hours

= $264,475

Amount of overheads to be applied to production =$264,475