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Required information [The following information applies to the questions displayed below.] The controller for Tender Bird Poultry, Inc....

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Accounting

Required information

[The following information applies to the questionsdisplayed below.]

The controller for Tender Bird Poultry, Inc. estimates that thecompany’s fixed overhead is $100,000 per year. She also hasdetermined that the variable overhead is approximately $0.15 perchicken raised and sold. Since the firm has a single product,overhead is applied on the basis of output units, chickens raisedand sold.

Required:

1. Calculate the predetermined overhead rateunder each of the following output predictions: (Round youranswers to 2 decimal places.)

VolumesOverhead Rate
200,000per chicken
300,000per chicken
400,000per chicken

2. Does the predetermined overhead rate change in proportion tothe change in predicted production?

  • Yes

  • No

Answer & Explanation Solved by verified expert
3.7 Ratings (566 Votes)

Calculation of the predetermined overhead rate
Volume $ 200,000 $ 300,000 $ 400,000
Fixed Overhead 100000 100000 100000
Per unit fixed overhead $       0.50 $       0.33 $       0.25
( Fixed overhead/ volume)
Variable overhead per chicken $       0.15 $       0.15 $       0.15
Overhead Rate per unit $       0.65 $       0.48 $       0.40
(Per unit fixed overhead+ variable overhead)
Yes, The predetermined overhead rate changes in proportion to the change in predicted production.
It decreased with increase in the number of units

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