Question

The York Co. uses a job order cost system and applies factory overhead to individual jobs by using predetermined overhead rates. In department X, overhead is applied on the basis of machine hours, and in department Y, on the basis of direct labor hours. At the beginning of the current year, management made the following budget estimates: Dept X Dept Y Direct Labor $210,000 $384,000 Factory Overhead $216,000 $105,000 Machine Hours 36,000 900 Direct Labor Hours 18,000 25,000 Production order No. 401 for 2,000 units was started in the middle of January and completed two weeks later. The cost records for this job show the following: Job No. 401 Dept X Dept Y Cost of Direct Materials $6,000 $13,000 Direct Labor Cost $7,000 $15,000 Direct Labor Hours 650 1,000 Machine Hours 1,200 100 Required: Determine the overhead rate that should be used for each department in applying overhead costs to Job No. 401. What is the total cost of Job No. 401, and the unit cost of the product manufactured on this production order? Assume that actual overhead costs for the year were $210,000 in Dept X and $108,500 in Dept Y. Actual machine hours in Dept X were 34,000, and actual direct labor hours in Dept Y were 25,000 during the year. On the basis of that information, determine the over or under applied overhead for each department for the year.

Answer 1

1.

Predetermined overhead rate:

Department X = $216,000/36,000 = $6 per machine hour

Department Y = $105,000/25,000 = $4.2 per direct labor hour

2.

	Department X	Department Y	Total
Direct material	$6,000	$13,000	$19,000
Direct labor	7,000	15,000	22,000
Factory overhead applied	7,200 (1,200*$6)	4,200 (1,000*$4.2)	11,400
Total cost	$20,200	$32,200	$52,400
Total units			2,000
Unit product cost			$26.2

3.

	Department X	Department Y
Applied overhead	$204,000 (34,000*$6)	$105,000 (25,000*$4.2)
Actual overhead	210,000	108,500
Under applied overhead	$6,000	$3,500