The controller for Tender Bird Poultry, Inc. estimates that the company’s fixed overhead is $100,000 per year. She also has determined that the variable overhead is approximately $0.20 per chicken raised and sold. Since the firm has a single product, overhead is applied on the basis of output units, chickens raised and sold.
Exercise 3-24 Part 1
Required:
1. Calculate the predetermined overhead rate under each of the following output predictions: (Round your answers to 2 decimal places.)
2. Does the predetermined overhead rate change in proportion to the change in predicted production?
-
Yes
-
No
Homework Answers
Requirement - (1), The predetermined overhead rate under each of the following outputs
Predetermined overhead rate under 200,000 Volume = Fixed overhead rate + Variable overhead rate
= [$100,000 / 200,000 Chickens] + $0.20 per chicken
= $0.50 per chicken + $0.20 per chicken
= $0.70 per chicken
Predetermined overhead rate under 300,000 Volume = Fixed overhead rate + Variable overhead rate
= [$100,000 / 300,000 Chickens] + $0.20 per chicken
= $0.33 per chicken + $0.20 per chicken
= $0.53 per chicken
Predetermined overhead rate under 400,000 Volume = Fixed overhead rate + Variable overhead rate
= [$100,000 / 400,000 Chickens] + $0.20 per chicken
= $0.25 per chicken + $0.20 per chicken
= $0.45 per chicken
Requirement - (2)
“NO”. The predetermined overhead rate does not change in proportion to the change in predicted production.
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