Question

# Chase Inc. uses a job order costing system. The estimated manufacturing overhead for the year is...

Chase Inc. uses a job order costing system. The estimated manufacturing overhead for the year is \$3,500,000. The company has decided to allocate the manufacturing overhead to products on the basis of direct labour cost. The estimated direct labour costs for the year are \$2,000,000.

1. What is the pre-determine fixed overhead rate that will be used to apply fixed manufacturing overhead to products?

Job # 123 has accumulated \$10,000 of direct materials and \$20,000 of direct labour costs. The rate per direct labour hour is \$25.

l. How much manufacturing overhead will be applied to Job #123?

m. What is the total manufacturing cost of Job # 123 ?

Job # 124 has accumulated \$18,000 of direct materials and \$60,000 of direct labour costs. The rate per direct labour hour is \$60.

1. How much manufacturing overhead will be applied to Job #124?
2. What is the total manufacturing cost of Job # 124 ?

Job # 125 has accumulated \$12,000 of direct materials and \$25,000 of direct labour costs. The rate per direct labour hour is \$25.

1. How much manufacturing overhead will be applied to Job #125?.
2. What is the total manufacturing cost of Job # 125 ?

At the end of the year over 40,000 different jobs were produced. Actual manufacturing overhead costs amounted to \$3,200,000 instead of the \$3,500,000 estimated at the beginning of the year. The actual direct labour costs amounted to \$2,200,000 instead of the \$2,000,000 estimated at the beginning of the year.

1. How much manufacturing overhead was applied to all of the 40,000 + jobs?
2. Was the manufacturing overhead over or under applied?
3. By how much was the manufacturing overhead over or under applied?

1) Overhead rate = 3500000/2000000 = 175% of direct labor cost

2) Overhead applied = 20000*1.75 = 35000

Total manufacturing cost = 10000+20000+35000 = 65000

3) Overhead applied = 60000*1.75 = 105000

Total manufacturing cost = 18000+60000+105000 = 183000

4) Overhead applied = 25000*1.75 = 43750

Total manufacturing overhead = 12000+25000+43750 = 80750

5) Overhead rate = 3500000/200000 = 1.75 per direct labor cost

Applied overhead = 2200000*1.75 = 3850000

Over applied

By (3850000-3200000) = 650000

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