Question

Desert Products is a small pottery manufacturer using direct labor hours as the single indirect-cost rate to apply manufacturing overhead costs to the various jobs contracted during the year. The following estimated and end of year actual information is provided:

	Estimated at Beginning of Year	Actual at End of Year
Direct Materials	$2,000,000	$1,950,000
Direct Labor	$1,450,000	$1,370,000
Manufacturing overhead costs	$2,465,000	$2,397,000
Direct labor hours	145,000 DLH’s	142,000 DLH’s

YOU MUST SHOW YOUR COMPUTATIONS TO RECEIVE CREDIT:

1. Compute Desert’s overhead application rate using normal costing:
2. Compute Desert’s over/under applied overhead at the end of the year?
3. Is overhead over or under applied?
4. Assume Desert completed Job #626 which used $45,000 of direct materials,$42,000 of direct labor and 4,200 DLH’s. What is the total cost of Job #626?
5. If Job #626 consists of 2,000 units, what is the cost per unit?

Answer 1

Overhead rate = $2465000/145000 = $17 per DLH

Overhead applied = 142000 x $17 = $2414000
Over (under) applied overhead = $2414000-2397000 = $17000

Overhead is over applied

Direct Material	$       45,000
Direct Labor	$       42,000
Overhead	$       71,400
Total Cost	$   1,58,400
Units	2000
Cost per unit	$         79.20