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Burka [1]
3 years ago
14

At the beginning of 2013, Barcroft Co. estimated that its total annual fixed overhead costs would amount to $25,000. Further, Ba

rcroft estimated that its volume of production would be 2,000 units of product. Based on these estimates, Barcroft computed a predetermined overhead rate that was used to allocate overhead costs to the products made in 2013. As predicted, actual fixed overhead costs did amount to $25,000. However, actual volume of production amounted to 2,200 units of product. Based on this information alone: 
a. Products were costed accurately in 2013.

b. Products were overcosted in 2013.

c. Products were undercosted in 2013.

d.The answer cannot be determined from the information provided
Business
1 answer:
Varvara68 [4.7K]3 years ago
3 0

Answer:

b. Products were overcosted in 2013

Explanation:

When determining the cost of a product, we consider only the Overheads Applied.

<u>Applied Overheads are calculated as :</u>

Pre-determined Overhead Rate <em>multiplied by </em>Actual Activity

<u>Predetermined Overhead Rate is calculated as follows :</u>

Budgeted Overheads <em>divided by</em> Budgeted Activity

Predetermined Overhead Rate = $25,000/2,000 units

                                                     = $ 12.50 per unit

Applied Overheads = $ 12.50 per unit × 2,200 units

                                 =  $ 27,500

The Overheads Applied are then <em>Compared to</em> Actual Overhead Cost to determine is the Overheads where Over or Under Applied

<u>Therefore our case presents the following:</u>

Applied Overheads ($ 27,500) >Actual Overheads ($25,000)

Therefore, we have an Over-Application situation.

Over-Applied Overheads are $2,500

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