Question

Dimopoulos Pools manufactures swimming pool equipment.

	Estimated manufacturing		Estimated quantity		Predetermined			Allocated
	overhead costs		of allocation base		overhead rate			overhead
Direct labor hours	$1,300,000		50,000		$26.00 per DL hour			$1,357,200
Direct labor cost	$1,300,000		$1,000,000		130% of DL cost			$1,332,500
Machine hours	$1,300,000		65,000		$20.00 per MH			$1,276,000

Determine the total overallocation or underallocation of manufacturing overhead during the year in the following independent situations. Actual manufacturing costs for the year for Dimopoulos Pools totaled$1,325000.

1.	Assume that the company used direct labor hours as the allocation base.
2.	Assume that the company used the direct labor cost as the allocation base.
3.	Assume that the company used machine hours as the allocation base.
4.	Were there any situations in which jobs were costed correctly? If not, when were they overcosted? When were they undercosted?

Answer 1

Case-1 labor hours
Under/ Over-allocation of overheads
Actual overheads incurred				1325000
Less: Overheads applied				1357200
Over-applied OH				32200
Case-2 Labour cost
Under/ Over-allocation of overheads
Actual overheads incurred				1325000
Less: Overheads applied				1332500
Over-applied OH				7500
Case-3 Machine hours
Under/ Over-allocation of overheads
Actual overheads incurred				1325000
Less: Overheads applied				1276000
Under -applied OH				49000
No, Jobs are not correctly priced in any of the situations.
Overcosted in following situations:
Oh absorbed on Labour hours basis.
Oh absorbed on Labour cost basis.
Under costed in Following situations:
OH absorbed on Machine hours basis