Question

Chloe Corp uses a job order costing system with manufacturing overhead applied to products on the basis of direct labor hours. For the upcoming year, Chloe Corp estimated total manufacturing overhead cost at $784,700 and total direct labor hours of 41,300. During the year actual manufacturing overhead incurred was $749,000 and 40,900 direct labor hours were used.

(a) Calculate the predetermined overhead rate.



(b) Calculate how much manufacturing overhead will be applied to production.



(c) Is overhead over - or underapplied? By how much? (Input the amount as positive value.)



(d) What account should be adjusted for over - or underapplied overhead? Should the balance be increased or decreased?

Answer 1

IN THE BOOKS OF CHLOE CORP

(a) Predetermined Overhead Rate=Estimated manufacturing overhead cost/Total Direct labour hours.

=$ 7,84,700/41300 hours

= $ 19/direct labour hour

(b) Manufacturing Overheads applied to production= Pre determined overheads recovery rate * Actual direct labour hours

= $ 19/hour* 40,900 hours

= $ 7,77,100

         (c ) Overheads are OVER-APPLIED by $ 28,100

       (d ) Cost of goods sold account should be adjusted for over and under applied overheads. Since this is a case of over-applied overheads , the cost of goods sold account should be decreased.