Determining Overhead Rate; Normal Capacity Method. Desmond Corp. estimates that its production for the coming year will be 10,000 widgets, which is 80% of normal capacity, with the following unit costs: materials, $40; direct labor, $60. Direct labor is paid at the rate of $24 per hour. The widget shaper, the most expensive piece of machinery, must be run for 20 minutes to produce one widget. Total estimated overhead is expected to consist of $400,000 for variable overhead and $400,000 for fixed overhead. Required: Compute the overhead rate for each of the following bases, using the normal capacity activity level:
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Determining Overhead Rate; Normal Capacity Method. Desmond Corp. estimates that its production for the coming year will be 10,000 widgets, which is 80% of normal capacity, with the following unit costs: materials, $40; direct labor, $60. Direct labor is paid at the rate of $24 per hour. The widget shaper, the most expensive piece of machinery, must be run for 20 minutes to produce one widget. Total estimated overhead is expected to consist of $400,000 for variable overhead and $400,000 for fixed overhead.
Required: Compute the overhead rate for each of the following bases, using the normal capacity activity level:
(1) physical output
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