Southern Rim Parts estimates its manufacturing overhead to be $495,000 and its direct labor costs to be $900,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $20,000 for Job 301, $30,000 for Job 302, and $40,000 for Job 303. For the year, actual manufacturing overhead was $479,000 and the total direct labor cost was $850,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using predetermined rates.
Required:
a. How much overhead was assigned to each of the
three jobs, 301, 302, and 303?
| Job 301 | $ |
| Job 302 | $ |
| Job 303 | $ |
b. What was the over- or underapplied manufacturing overhead for year 1?
Over OR under? applied manufacturing overhead $__________
Answer - (a) - Calculation of Overhead applied to each job in year 1 -
Overhead Rate = Estimated manufacturing overhead / Estimated direct labor costs
= $495,000 / $900,000
= 0.55
| Particulars | Actual direct labor costs | Calculations | Amount ($) |
| Job 301 | $20,000 | $0.55 x $20,000 | $11,000 |
| Job 302 | $30,000 | $0.55 x $30,000 | $16,500 |
| Job 303 | $40,000 | $0.55 x $40,000 | $22,000 |
Total applied overhead = $49,500
Answer - (b) - Calculation of the Over or Underapplied manufacturing overhead for year 1 -
= Actual manufacturing overhead - Applied manufacturing overhead
= $4,79,000-$49,500
= $429,500
Therefore, Underapplied manufacturing overhead = $429,500
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