(Overhead Application)
Sunny Systems manufactures solar panels. The company has a theoretical capacity of 50,000 units annually. Practical capacity is 80 percent of theoretical capacity, and normal capacity is 80 percent of practical capacity. The ?rm is expecting to produce 30,000 units next year. The company president, Deacon Daniels, has budgeted the following factory overhead costs for the coming year:
•Indirect materials: $2.00 per unit
•Indirect labor: $144,000 plus $2.50 per unit
•Utilities for the plant: $6,000 plus $0.04 per unit
•Repairs and maintenance for the plant: $20,000 plus $0.34 per unit
•Material handling costs: $16,000 plus $0.12 per unit
•Depreciation on plant assets: $210,000 per year
•Rent on plant building: $50,000 per year
•Insurance on plant building: $12,000 per year
a. Determine the cost formula for total factory overhead in the format of y = a + bX.
b. Determine the total predetermined OH rate for each possible overhead application base.
c. Assume that Sunny Systems produces 35,000 units during the year and that actual costs are exactly as budgeted. Calculate the over applied or under applied overhead for each possible overhead allocation base.