Trex by Rex produces back packs and fanny packs for the outdoors enthusiast. Production costs include direct materials, direct labor, and manufacturing overhead – both fixed and variable. The following costs were budgeted for the year:
Fixed manufacturing overhead $187,200
Variable manufacturing overhead $1.10/direct labor hour
Fixed selling and administrative $346,000
The back packs are expected to require 2.5 direct labor hours and planned production is 12,000 units. The fanny packs are expected to require 1.8 direct labor hours and planned production is 18,000 units. The actual direct labor hours required in production for the year were as follows:
Product Direct Labor Hours Used
Back packs 34,060 DL hours
Fanny packs 16,250 DL hours
Overhead is applied to production using direct labor hours and the actual manufacturing cost for the year was $207,500. Calculate the manufacturing overhead rate used to apply overhead to production of both the back packs and the fanny packs. What is the resulting over- or under-absorbed overhead for the year? Explain what the over- or under-absorbed overhead represents and how it will be handled in the determination of the final costs of the products. Your analysis should be at least 2 pages and follow proper APA format. Show your work for any calculations and cite any outside references used.