Answer:
Dürnstein Schnapps
a. Durnstein Schnapp's Plantwide Overhead Rate for last year:
= Budgeted overhead/total budgeted direct labour hours
= € 1,216,200/23,200
= €52.42
b. Manufacturing overhead absorbed by one batch of plum schnapps using 20 direct labor hours
= Overhead rate * direct labor hours
= €52.42 * 20
= €1,048.40
c. Determination of over/underabsored overhead last year:
= Total budgeted manufacturing overhead minus actual manufacturing overhead
= € 1,216,200 - € 1,250,500
= € 34,500 under absorbed
d. Durnstein Schnapps will adjust the cost of goods sold and the ending inventory in order to account for the underabsored overhead in part (c).
The purpose is to reflect eh true absorption cost of products and ending inventory.
Explanation:
Data and Calculations:
Variable manufacturing overhead (budgeted) = €16.00 per direct labor
Fixed manufacturing overhead (budgeted) = €
845,000 for the year
Budgeted and operating data for the last fiscal year:
Pear Plum Cherry
Actual batches 520 370 210
Budgeted number of batches 500 400 200
Actual direct hours per batch 17 15 34
Budgeted direct labor hours per 18 18 35
batch
Total budgeted direct labor hours
(500*18) (400*18) (200*35) 9,000 7,200 7,000 23,200
Total actual direct labor hours
(520 * 17) (370 * 15) ( 210 * 34) 8,840 5,550 7,140 21,530
Durnstein Schnaps incurred actual manufacturing overhead last year of € 1,250,500.
Budgeted manufacturing last year = Budgeted direct labor hours * Variable manufacturing overhead per direct labour hour + Budgeted fixed manufacturing overhead
= 23,200 x €16.00 + € 845,00
= €371,200 + €845,00
= € 1,216,200
b) Absorption costing is a method that Durnstein Schnapps can use to calculate the costs of its variety of schnapps by including direct and indirect costs. It is not like marginal or variable costing method that uses only the variable elements of production costs in arriving at the costs of Durnstein schnapps. The absorption costing method tries to capture all production costs and absorb them into the costs of the pear, plums, and cherries schnapps in order to determine their appropriate prices. Variable costing method does not treat overhead production costs as product costs, but as period costs.
