Central Redi-Mix – Overhead

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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.


  1. Compute
    the overhead application rate for 2014.

  2. Calculate
    the amount of overhead applied to work-in-process during the year.

  3. Compute
    the overhead variance. Was it favorable or unfavorable and why?

  4. 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.

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