The Alphonse Company Allocates Fixed Overhead Costs by Machine Hours

question 24

Essay

The Alphonse Company allocates fixed overhead costs by machine hours and variable overhead costs by direct labor hours. At the beginning of the year the company expects fixed overhead costs to be $600,000 and variable costs to be $800,000. The expected machine hours are 6,000 and the expected direct labor hours are 80,000. The actual fixed overhead costs are $700,000 and the actual variable overhead costs are $750,000. The actual machine hours during the year are 5,500 and the actual direct labor hours are 90,000.
Required:
a. How much overhead is allocated?
b. What is the over/under-absorbed overhead?

Grasp the concept and effects of fixed versus flexible budgets on cost control.

Analyze the implications of favorable and unfavorable variances on business decisions.

Understand the importance of management by exception in controlling operations.

Understand the principles of recording interest income and the impact on financial statements.

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Definitions:

Price Ceiling

A legal limit set by the government on how high the price of a good or service can be charged in the market.

Shrimp Sales

The commercial activity of selling shrimp, a popular seafood, either cultivated or wild-caught, in various markets.

Binding Price Floor

A government-imposed price control set above the equilibrium price, causing a surplus by preventing the price from falling to its natural level.

Hybrid Cars

Vehicles powered by a combination of an internal combustion engine and one or more electric motors, using less fuel than conventional vehicles.