Question

2. Molly's Millinery makes women's hats that are worn at special events. The hats are limited editions and are made as special orders. They are costed using job costing. Overhead is applied using normal costing based on direct labour hours Last year, Molly and her accountant budgeted for manufacturing overhead costs of $85,000. They determined that after considering equipment maintenance, break periods and allowances for breakdowns, her millinery business could operate at 2,500 direct labour hours. Each hat takes an average of four hours to make, and Molly expected to make 500 hats during the year During the year, Molly made 510 hats, taking 4.5 hours on average to make each hat. The actual overhead was $84,200. What was the planned idle capacity cost for Molly's Millinery? a) $6,170 b) $17,000 c) $68,000 d) $78,030

Answer 1

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Planned idle capacity cost = Expected Idle capacity x Overhead rate