Central Redi-Mix Concrete, Inc. applies manufacturing overhead based on number of yards of concrete produced. At the beginning of 2014 management estimated the plant would produce 100,000 yards of concrete during the coming year. At the same time manufacturing overhead was budgeted to be $500,000. At the end of the year the firm had produced 110,000 yards of concrete and incurred $550,000 of manufacturing overhead.
Compute the overhead application rate for 2014.
Calculate the amount of overhead applied to work-in-process during the year.
Compute the overhead variance. Was it favorable or unfavorable and why?
Explain why we use a predetermined rate to apply manufacturing overhead to work-in-process versus the way a company accounts for direct labor and direct material.